EUR/USD falls to near 1.0650 as ECB expects to pursue more aggressive rate cuts than Fed

• EUR/USD slips as the ECB is anticipated to implement more aggressive interest rate cuts compared to the Fed.
• German Chancellor Olaf Scholz has expressed willingness to move the parliamentary confidence vote forward by several weeks.
• The US Dollar gains ground as Trump's fiscal policies could potentially heighten inflation risks.

The EUR/USD pair continues its decline for a third consecutive session, trading around 1.0640 during Asian hours on Tuesday. Fiscal policies anticipated under US President-Elect Donald Trump may negatively impact the European economy, adding pressure on the Euro.

Expectations that the European Central Bank (ECB) will pursue more aggressive rate cuts than the Federal Reserve (Fed) are also weighing on the Euro. The ECB is anticipated to reduce rates by 25 basis points in December, with markets projecting a decline to 2% by June. The CME FedWatch Tool currently shows a 65.3% probability that the Fed will lower rates by a quarter percentage point at its December meeting.

Politically, German Chancellor Olaf Scholz has shown openness to advancing the parliamentary confidence vote by several weeks, potentially moving it up to before Christmas. This could set the stage for an early election.

The US Dollar (USD) continues to gain strength following the confirmation of Trump's victory in the US election. Analysts believe that if Trump's fiscal policies are enacted, they could stimulate investment, spending, and labor demand, potentially heightening inflation risks. This could lead the Federal Reserve to adopt a more hawkish monetary policy, further supporting the Greenback.

On Sunday, Minneapolis Fed President Neel Kashkari remarked that the US economy has demonstrated impressive resilience as the Fed works to control inflation. However, Kashkari emphasized that the Fed is "not all the way home" and will need additional evidence to ensure inflation fully returns to the 2% target before considering another rate cut.

Traders will likely focus on the German Harmonized Index of Consumer Prices and the ZEW Survey - Economic Sentiment, scheduled for Tuesday. Attention will then turn to the US inflation data set for release on Wednesday, which could provide key insights into future US monetary policy.