The EUR/USD exchange rate has weakened to approximately 1.0850 during the early hours of Thursday’s Asian trading session. This decline is primarily driven by increasing strength in the US dollar, as traders anticipate a series of modest interest rate cuts from the Federal Reserve over the next year. The focus for many investors is on an upcoming monetary policy meeting of the European Central Bank (ECB), where another interest rate cut is widely expected.
At the recent Federal Open Market Committee meeting, the Fed opted for an unusual approach by reducing its benchmark interest rate by half a percentage point, setting the target range between 4.75% and 5.00%. As market sentiment shifts, there is growing speculation that the Fed will implement more gradual interest rate reductions moving forward. Fed officials have signalled caution, expressing that future cuts may not mimic the substantial change seen in September, given concerns about the current pace of economic growth. Attention will soon turn to US Retail Sales data, with expectations for an increase from 0.1% in August to 0.3% in September.
In Europe, the ECB is poised to enact its third interest rate cut of the year in its upcoming meeting. Current market expectations suggest the likelihood of three additional rate reductions by March 2025. Recent comments from the ECB President highlight confidence that inflation will align with targets in a timely manner and that this will influence upcoming policy decisions. However, dovish rhetoric from ECB officials, coupled with weaker-than-expected inflation figures from the Eurozone, could exert further pressure on the EURO against the US dollar in the near term.
