The EUR/USD currency pair has seen a decline below the 1.0550 level, with prices hovering around 1.0530 during the early trading hours of Monday in Asia. This downward movement comes as traders brace for the upcoming speech from Christine Lagarde, President of the European Central Bank (ECB), alongside the release of crucial US ISM Manufacturing Purchasing Managers’ Index (PMI) data later in the day.
In November, inflation in the Eurozone rose to 2.3% year-over-year, a slight increase from 2.0% in October. This figure, surpassing the ECB’s target of 2.0%, aligns with market expectations. Simultaneously, the Core HICP also saw an uptick, climbing to 2.8% year-over-year, up from 2.7% in the previous reading.
Market sentiment indicates that participants have largely priced in a 25 basis points rate cut by the ECB in December, marking the fourth reduction this year. However, the anticipation of a more aggressive 50 basis points cut has diminished, notably due to slight improvements in the Eurozone’s growth forecasts. Such expectations have contributed to some bearish pressure on the EURO .
Conversely, the US dollar is showing resilience, supported by the cautious approach of the Federal Reserve. Recent remarks from the Fed Chair emphasized that current economic indicators do not necessitate swift rate cuts. This perspective, combined with the prevailing strength of the US economy, has helped fortify the dollar’s position. Current market probabilities suggest a 65.4% chance that the Fed will implement a 25 basis points rate cut in December, further influencing the dynamics between the EURO and the dollar. As these key events unfold, traders will be closely watching for potential impacts on the forex market.
