EUR/USD hovers around 1.0550 near yearly lows amid cautious Fed, dovish ECB

• EUR/USD appreciates despite a negative bias amid the cautious US Federal Reserve.
• Fed Chair Powell stated that the economy is not sending any signals that we need to lower rates quickly.
• The headline inflation in the Euro Area is projected to drop sharply to 2.4% in 2024, from 5.4% in 2023.

The EUR/USD pair trades around 1.0550 during Monday's Asian trading session, hovering near its yearly low of 1.0496, which was reached on November 14. Downside risks for the pair have intensified following cautious comments from Federal Reserve (Fed) officials and stronger-than-expected US Retail Sales data, broadly supporting the US Dollar (USD).

Last week, Fed Chair Jerome Powell tempered expectations for imminent rate cuts, emphasizing the economy's resilience, a strong labor market, and persistent inflationary pressures. Powell stated, "The economy is not sending any signals that we need to be in a hurry to lower rates."

The CME FedWatch Tool indicates that markets are pricing in nearly a 60% probability of a 25-basis-point rate cut by the Fed at its December meeting.

The US Census Bureau reported on Friday that Retail Sales increased by 0.4% month-over-month in October, exceeding the market consensus of 0.3%. Additionally, the NY Empire State Manufacturing Index for November posted an unexpected surge, coming in at 31.2 compared to the anticipated 0.7 decline, signaling robust manufacturing activity.

The Euro faces continued downward pressure as the European Central Bank (ECB) maintains a dovish stance, with a policy rate cut expected at its upcoming December meeting. Headline inflation in the Euro Area is projected to drop sharply to 2.4% in 2024, down from 5.4% in 2023, before easing more gradually to 2.1% in 2025 and 1.9% in 2026.

The European Commission's Autumn 2024 forecast projects 0.8% growth for the Euro Area in 2024, unchanged from the Spring forecast. However, the 2025 growth forecast has been revised slightly downward to 1.3% from 1.4%, while the Eurozone economy is projected to grow by 1.6% in 2026.

EU Economy Commissioner Paolo Gentiloni stated, "As inflation continues to ease and growth in private consumption and investment gains momentum, alongside record-low unemployment, growth is expected to gradually accelerate over the next two years."