The EUR/USD currency pair is currently experiencing temporary support around the 1.0220 level, following a significant drop to this level — the lowest in over two years. Analysts suggest that further declines may be on the horizon due to contrasting monetary policies from the Federal Reserve and the European Central Bank. Specifically, Fed officials have signaled fewer interest rate cuts in 2025, while ECB representatives have indicated that an ongoing easing policy is likely.
Recent projections from the Fed suggest that interest rates could settle at approximately 3.9% by the end of the year, indicating two potential cuts, which is a reduction from the previously forecasted four cuts. This shift in expectations reflects a broader view that economic policies under President Trump, including tighter immigration and higher tariffs, may help stimulate growth and elevate inflation pressures within the U.S. economy.
Despite a slight dip in the US Dollar Index, which remains near a two-year peak above 109.00, market participants are closely monitoring upcoming U.S. labor market indicators that could impact interest rate expectations. As it stands, the Fed seems poised to maintain its interest rates in the range of 4.25%-4.50% during the January policy meeting.
In terms of future movements for EUR/USD , early predictions show that support at 1.0220 may not hold. Traders have already factored in a series of interest rate cuts from the ECB in the coming year. This reflects fears of inflation in the Eurozone falling below the target of 2%, prompting the ECB to consider further cuts. On Thursday, the HCOB Manufacturing PMI revealed that manufacturing activity continued to contract, exacerbating concerns about the region’s economic health.
As markets anticipate upcoming inflation data for Germany and the Eurozone, the bearish sentiment surrounding the EUR/USD remains strong. The technical outlook shows downward momentum, with significant resistance expected at 1.0458, while support could be established around 1.0100.
