The EUR/USD currency pair is encountering challenges due to shifting market perceptions about the policies of central banks. The US Dollar has strengthened, fueled by a diminishing expectation for a significant rate cut by the Federal Reserve in November. In the Eurozone, the European Central Bank (ECB) appears poised to intensify its policy easing efforts to stimulate economic growth.
Currently, EUR/USD is stable after previous gains, trading around 1.0860 during Monday’s Asian session. However, there are concerns about potential declines, as speculation surrounding a substantial 50-basis-point rate cut from the Federal Reserve has been largely dismissed in light of recent economic data that highlight the resilience of the US economy.
Recent updates from the CME indicate that the probability of a 25-basis-point cut in November has risen to 99.3%, an increase from 89.5% just a week prior. It was reported that US Retail Sales increased by 0.4% month-over-month in September, exceeding both the previous month’s growth of 0.1% and market expectations of 0.3%. Additionally, Initial Jobless Claims decreased by 19,000 in the week ending October 11, marking the largest drop in three months, with the total claims falling to 241,000, notably below the expected 260,000.
Research from Rabobank indicates that recent statements from ECB officials suggest a growing confidence in the Eurozone’s inflation outlook. As a result, the ECB appears to be shifting its emphasis towards enhancing regional growth. This shift has ignited speculation about a more rapid pace of easing, including the possibility of a larger 50-basis-point rate cut, which could place downward pressure on the EURO and adversely affect the EUR/USD pair.
The EURO has already been under pressure following the ECB’s decision to lower interest rates by 25 basis points last week. This action is a direct response to a substantial reduction in inflation, which peaked at 10.6% in October 2022 but has now slid to 1.7% in September, falling below the ECB’s target of 2%.
