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As investors look for fresh clues about possible interest rate moves by the Fed and ECB in December, EUR/USD has gained ground and is now trading close to 1.0550. There is no pressing need to lower interest rates, Fed Chair Jerome Powell stressed. Investor anxiety over a trade war between the United States and the Eurozone has increased.
From the psychological support level of 1.0500 at the beginning of the week, EUR/USD recovered. As the advance in the US dollar (USD) slowed after reaching a new yearly high, the main currency pair bounced back. The Greenback’s value is measured against six major currencies by the US Dollar Index (DXY), which is searching for fresh catalysts to push above the crucial resistance level of 107.00.
While a period of consolidation seems likely in the near term, some analysts have revised up their forecasts for the US Dollar and now project a further 5% appreciation by the end of 2025. This is primarily based on the expectation that President-elect Donald Trump will implement his core tariff policies and that the US economy will continue to outperform its major peers.
Investors are looking for new cues on how Trump’s policies will influence monetary policy decisions for the December meeting and beyond. Meanwhile, Federal officials are cautious about projecting the potential impacts of Trump’s policies on the economy and interest rate policy. At an event at the Federal Bank of Dallas on Thursday, Fed Chair Jerome Powell stated, “I think it’s too early to reach judgments here.” He added, “We don’t really know what policies will be put in place.”
Regarding the interest rate outlook, Powell mentioned that the economy is not showing signs that would necessitate immediate rate cuts. However, he reiterated that inflation is on a sustainable path towards the Fed’s 2% target, allowing them to move towards the neutral rate.
This week, investors will focus on the preliminary S&P Global Purchasing Managers Index (PMI) data for November, which will be released on Friday. The PMI data will provide insights into the current state of private business activity and the impact of Trump’s victory on business optimism.
EUR/USD recovers ahead of ECB President Christine Lagarde’s speech in Paris at 18:30 GMT. Investors are keen to understand the impact of Trump’s protectionist policies on the Eurozone economy and look for hints about the potential size of the interest rate cut in December.
Concerns about a trade war between the Eurozone and the United States have deepened following comments from Stephen Moore, a senior economic advisor to Donald Trump. Moore stated on BBC radio over the weekend that the US would be less interested in a free trade deal with Britain if the UK prioritized its economic relations with the European Union over those with the United States.
ECB Vice President Luis de Guindos said on Monday, “The balance of risks has shifted from concerns about high inflation to fears over economic growth.” The prospect of a trade war between the Eurozone and the US emerged when Trump mentioned during his election campaign that the euro bloc would “pay a big price” for not buying enough American exports. Analysts expect the ECB to cut interest rates again in December, but a 50 basis points cut is not guaranteed.
