The EUR/USD currency pair is experiencing downward pressure for the second consecutive day, advancing to the 1.0890 region. This decline is primarily influenced by a stronger US Dollar (USD) as traders anticipate reduced rate cuts from the Federal Reserve and consider geopolitical uncertainties. However, short-selling traders may adopt a cautious stance ahead of the upcoming European Central Bank (ECB) meeting on Thursday.
On the economic front, the ECB is poised to make its policy announcement, expected to feature a further reduction in interest rates for the third time as part of its easing strategy. This is driven by persistent concerns surrounding sluggish growth in the Eurozone, with inflation rates recently slipping below the ECB’s target of 2% for the first time since 2021, reinforcing the case for ongoing policy relaxation. These developments contribute to the weakening of the EURO , exacerbated by a robust USD, further impacting the EUR/USD exchange rate.
The USD Index, which compares the dollar’s performance against a range of other currencies, is currently near a two-month high. The market is now largely discounting the likelihood of a significant rate cut from the Federal Reserve in November, resulting in sustained higher yields for US Treasury bonds. Additionally, ongoing geopolitical tensions are reinforcing demand for the USD, enhancing the potential for a continued decline in the EUR/USD pair.
Market participants are also keenly awaiting key economic indicators due for release on Tuesday, including the German ZEW Economic Sentiment Index and Eurozone Industrial Production data. In the afternoon, updates from the Empire State Manufacturing Index and remarks from significant Federal Open Market Committee (FOMC) members could further influence USD sentiment and provide short-term direction for the EUR/USD pair.
