The EUR/USD currency pair is facing challenges as the European Central Bank (ECB) signals the possibility of further policy easing, reflecting a sluggish economic outlook in the Eurozone. Meanwhile, the US Dollar has weakened due to growing speculation that the Federal Reserve may initiate two interest rate cuts later this year. Projections indicate that US retail sales might rise by 0.6% month-over-month in December, slightly down from the previous growth rate of 0.7%.
During the Asian trading session on Thursday, EUR/USD extended its losses for the second consecutive day, hovering around the 1.0280 level. The ECB’s recent commentary has added downward pressure on the currency pair, with officials indicating that additional monetary policy easing could be on the horizon. This sentiment is driven by the prevailing economic challenges facing the Eurozone.
At a recent conference, ECB policymakers hinted at exiting the current restrictive monetary policy stance by mid-year. However, the EURO initially gained some strength as the US Dollar weakened following the release of cooler-than-expected Consumer Price Index (CPI) inflation data for December. This report augmented market expectations that the Fed might lower interest rates in the months ahead.
The US CPI increased by 2.9% year-over-year in December, a slight rise from 2.7% in November, which aligned with market forecasts. On a monthly basis, CPI rose by 0.4%, an increase from November’s 0.3%. When excluding food and energy prices, the Core CPI registered a 3.2% annual increase for December, marginally below both the previous month and analyst expectations.
Additionally, the Federal Reserve’s latest Beige Book survey revealed modest growth across various districts in late November and December. Consumer spending showed reasonable growth, driven by robust holiday purchasing. However, some sectors, particularly manufacturing, reported a slight downturn, as manufacturers prepared for potential increased tariffs by building up inventories.
