The EUR/USD currency pair is trading stronger near the level of 1.0985 as the early European session begins on Tuesday. This uptick comes amid a slight pullback in the US Dollar, although the potential for further gains in the EUR/USD may be limited as market participants anticipate a less aggressive approach from the US Federal Reserve regarding interest rate cuts in the upcoming November meeting.
Comments from the Governor of the French Central Bank have contributed to this outlook, indicating that the European Central Bank (ECB) is likely to implement interest rate cuts due to sluggish economic growth. This situation raises concerns that inflation could dip below the ECB’s 2% target, leading traders to price in further cuts totaling around 150 basis points over the next year.
Later on Tuesday, additional insights are expected from ECB board member Isabel Schnabel, along with the release of Germany’s Industrial Production data. Should these updates reflect concerns about economic contraction or dovish sentiment from policymakers, the EURO could face downward pressure against the US Dollar.
On the US side of the equation, recently released employment data has bolstered expectations for a 25 basis point interest rate cut by the Federal Reserve in November, leading to a stronger outlook for the US Dollar. This shift in sentiment has increased the likelihood of a rate cut to 85%, a significant rise from just 31.1% the previous week, according to the CME FedWatch Tool. Overall, the interplay between European economic data and US monetary policy will be critical in shaping the future trajectory of the EUR/USD exchange rate.
