EUR/USD appreciates to near 1.0850 despite less-dovish sentiment surrounding the Fed

• EUR/USD may struggle as solid US Retail Sales data reinforces the odds that the Fed may deliver nominal rate cuts.
• CME FedWatch Tool suggests a 90.8% and 74.0% chance of a 25 basis point rate cuts in November and December, respectively.
• The Euro depreciated as the ECB reduced its Rate on Deposit Facility to 3.25%.

The EUR/USD pair breaks its four-day losing streak, trading around 1.0840 during the Asian session on Friday. However, the US Dollar (USD) received support and reached a two-month high of 103.87 on Thursday, supported by a solid US Retail Sales report, which fueled expectations that the Federal Reserve (Fed) may implement nominal rate cuts.

According to the CME FedWatch Tool, there is a 90.8% probability of a 25 basis point rate cut in November and a 74.0% chance of another cut in December.

US Retail Sales rose by 0.4% month-over-month in September, surpassing both the 0.1% gain recorded in August and market expectations of a 0.3% increase.

US Initial Jobless Claims fell by 19,000 during the week ending October 11, the largest decline in three months. The total number of claims dropped to 241,000, significantly below the anticipated 260,000.

However, the Euro faced downward pressure following the European Central Bank's (ECB) policy decision on Thursday.

The ECB reduced its Main Refinancing Operations Rate and the Rate on Deposit Facility by 25 basis points to 3.40% and 3.25%, respectively, as expected by market participants.

This marks the first back-to-back rate cut by the ECB in 13 years, bringing the Deposit Facility rate down to 3.25%. The move follows a significant decline in inflation, which peaked at 10.6% in October 2022 and dropped to 1.7% in September--below the ECB's 2% target.

During the post-meeting conference, ECB President Christine Lagarde left markets uncertain about the timing of future rate cuts, while stating that the Eurozone economy was on track for a soft landing.