The EUR/USD currency pair is showing signs of recovery on Thursday, rebounding from a recent decline as the US dollar experiences a slight pullback from a three-month peak. Although this uptick offers some relief to traders, broader economic conditions suggest that the upside potential for the pair may be limited. Anticipations surrounding less aggressive interest rate cuts by the Federal Reserve are expected to maintain support for the dollar, while speculation about a significant rate reduction from the European Central Bank (ECB) in December could place downward pressure on the EURO .
During the Asian trading session on Thursday, EUR/USD managed to gain traction, halting a three-day downward trend that saw it reach its lowest point since early July near the 1.0760 level. In recent hours, the spot price has climbed closer to 1.0800, driven by a modest weakening of the US dollar. However, traders remain cautious, considering the underlying economic fundamentals.
Investors are currently witnessing a pullback in US Treasury yields from the highs not seen since late July. This shift has prompted some profit-taking on the dollar ahead of the upcoming US Presidential election on November 5. While this situation might provide temporary relief for the EURO , expectations of a dovish ECB are likely to cap any substantial growth for the EUR/USD pair.
Recent data indicates that the annual inflation rate in the Eurozone dropped to 1.7% in September, falling below the ECB’s target of 2% for the first time since June 2021. This drop supports the notion of a continuing disinflationary trend and raises the likelihood of further policy easing. Additionally, ECB officials have pointed out downside risks that may hinder economic growth and inflation, contributing to a measured outlook for the EURO .
Looking ahead, market participants are poised for the upcoming release of the flash PMI figures from both the Eurozone and the US, which will provide critical insights into the state of the global economy and potentially impact market sentiment. In the context of these developments, the prevailing economic environment suggests that any upward movement in spot prices is likely to be constrained.
