EUR/USD is holding its ground above 1.0500. At the start of the week, during the Asian session on Monday, it was trading around 1.0520.
Anticipation of Fed Rate Cut
The market widely anticipates that the Federal Reserve will deliver a 25 basis point rate cut on Wednesday. The CME FedWatch tool shows that there is full pricing in for a quarter basis point cut at the Fed’s December meeting. Market analysts predict that the US central bank will cut rates while also getting the market ready for a pause. This is because the US economy is robust and inflation has stalled above 2%. Fed Chair Jerome Powell’s press conference and Dot Plots will be closely watched. Earlier this month, Powell said, “We can afford to be a little more cautious as we try to find neutral.” He made it clear that he is not in a rush to reduce rates.
Euro’s Gains from Political Development
The Euro got a boost after President Emmanuel Macron appointed centrist ally François Bayrou as France’s Prime Minister. This has raised hopes for political stability. Macron had promised to quickly choose a new candidate after Michel Barnier was forced to resign following a confidence vote in Parliament.
ECB’s Stance on Rates
On Friday, European Central Bank (ECB) Governing Council member Robert Holzmann said that cutting interest rates just to stimulate the economy would be a mistake. He stated that the ECB’s main job is to ensure price stability, not to drive economic growth. He said, “Lowering rates now to boost the economy would contradict our current stance.”
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