Created
: 2025.01.17
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EUR/USD softens below 1.0300 on ECB gradual rate cut bets
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EUR/USD softens below 1.0300 on ECB gradual rate cut bets
New
2025.01.17 14:22
2025.01.17 14:22
2025.01.17 14:22
- EUR/USD trades in negative territory around 1.0290 in Friday's early European session.
- The ECB highlighted gradual rate cuts amid economic uncertainties.
- Uncertainty over Trump's policies dampens prospects for Fed rate cuts despite easing US inflation.
The EUR/USD pair weakens to near 1.0290 during the early European session on Friday. The expectation of further rate cuts by the European Central Bank (ECB) drags the Euro (EUR) lower against the Greenback. Traders await the Eurozone Current Account and Harmonized Index of Consumer Prices (HICP) for fresh impetuses, which will be released later on Friday. Also, the ECB board member Piero Cipollone is set to speak on the same day.
The ECB Monetary Policy Meeting Accounts released on Thursday showed that policymakers agreed last month that interest rate cuts should be approached cautiously and gradually, but they also noted that further rate cuts remain on the cards.
The ECB will next meet on January 30 and investors have fully priced another 25 basis points (bps) cut. According to Reuters polls conducted between January 10-15, all 77 economists expect the ECB to cut the Deposit Facility rate by 25 bps to 2.75% at the January meeting, with 60% anticipating three additional 25-bps interest rate reductions by the middle of the year. Rising bets on further ECB reductions could weigh on the shared currency in the near term.
Across the pond, the US Federal Reserve (Fed) next monetary policy meeting is scheduled for January 28-29 and traders are nearly unanimous in their view the US central bank will hold the interest rates steady after cutting them by a full percentage point in late 2024.
Analysts believe that the uncertainty surrounding potential fiscal, trade, immigration, and regulatory policies from the incoming Donald Trump administration could dampen prospects for Fed rate cuts despite easing US inflation. This, in turn, might provide some support to the US Dollar (USD) and act as a headwind for EUR/USD.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB's primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates - or the expectation of higher rates - will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB's 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone's economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Last updated
: 2025.01.17
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USD steady to slightly firmer - Scotiabank
The US Dollar (USD) is trading steady to slightly firmer on the session but is heading for its first weekly drop since late November in DXY terms.
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2025.01.17 22:39USD/SGD: On the lookout for MAS announcement of MPC date - OCBC
USD/SGD continued to trade modestly softer as USD strength eased while JPY, CNH and risk sentiments found support. USD/SGD was last seen at 1.3658, OCBC's FX analyst Christopher Wong notes.
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2025.01.17 22:36USD/CAD jumps to near 1.4430 as investors turn cautious ahead of Trump's inauguration
The USD/CAD pair climbs to near 1.4430 in Friday's North American session.
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2025.01.17 22:20US Dollar stabilizes after Fed Waller alludes to March rate cut
The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, further consolidates around the 109.00 level on Friday, though positioning is being torn into two camps.
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2025.01.17 21:35Gold retraces on Friday but weekly gains nearly secured
Gold's price (XAU/USD) slightly retraces but holds above the $2,700 level on Friday, with some profit-taking occurring after its three-day rally this week. Federal Reserve (Fed) governor Christopher Waller spooked traders by commenting on Thursday
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2025.01.17 20:48USD/CNH: To trade most likely between 7.3380 and 7.3550 - UOB Group
Flat momentum suggests further range trading, most likely between 7.3380 and 7.3550. Upward momentum is beginning to fade; a breach of 7.3250 would suggest that 7.3700 is not coming into view, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.
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2025.01.17 20:44USD/JPY: Bearish bias on the day - OCBC
USD/JPY continued to trade lower, as expectations on BoJ hike next week continues to build. Markets are pricing in 22bp hike at the upcoming MPC (vs. 11bp hike expectations at the start of the new year). Pair was last at 155.69 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.
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2025.01.17 20:39USD/JPY decline is likely part of a lower range - UOB Group
Weakness has not stabilized, but any further US Dollar (USD) decline is likely part of a lower range of 154.90/156.15. In the longer run, USD remains weak; if it breaks below 154.90, the next objective will be at 154.40, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.
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2025.01.17 20:34DXY: Dip may find support in the interim - OCBC
US Dollar (USD) was a touch softer overnight, helped by dovish comments from Fed's Waller. He said that Fed may cut rates more this year and sooner than investors expect if future inflation data fall in line with Dec CPI report.
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2025.01.17 20:30NZD/USD: Expected to trade sideways between 0.5580 and 0.5630 - UOB Group
New Zealand Dollar (NZD) is expected to trade sideways between 0.5580 and 0.5630. In the longer run, NZD must break and remain above 0.5650 before a move to 0.5695 is likely, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.
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2025.01.17 20:25Disclaimer:
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