EUR/USD extends downside to near 1.0850, with all eyes on ECB rate decision

• EUR/USD weakens to around 1.0850 in Thursday's Asian session. 
• Traders expect that the Fed will proceed with modest interest rate cuts over the next year. 
• The ECB is widely expected to cut interest rates at its October meeting on Thursday. 

The EUR/USD pair extends its decline to near 1.0850 during the early Asian session on Thursday. The further upside of the Greenback exerts some selling pressure on the major pair. Investors will closely monitor the European Central Bank (ECB) monetary policy meeting, which is expected to lower interest rates again on Thursday. 

The Federal Open Market Committee (FOMC) at its September meeting took the unusual step of lowering its benchmark interest rate by a half percentage point to a target range of 4.75% to 5.00%. However, investors now anticipate that the Federal Reserve (Fed) will proceed with modest interest rate cuts over the next year, which underpin the Greenback broadly. 

Fed Governor Christopher Waller said on Monday that future interest rate cuts will be less aggressive than the large move in September, as he is concerned that the economy could still be running at a hotter-than-expected pace. Later on Thursday, investors will take more cues from the US Retail Sales data, which is expected to rise from 0.1% in August to 0.3% in September. 

Across the pond, the ECB is likely to deliver its third interest rate cut of the year at its October meeting, and money markets almost fully price in three further rate reductions through March 2025. ECB President Christine Lagarde said last month that the latest developments had strengthened the ECB's confidence that inflation will return to target in a timely manner and said this would be taken into account in October. The dovish comments from the ECB policymakers and softer-than-expected inflation from the Eurozone might weigh on the Euro (EUR) against the US Dollar (USD).