In Tuesday’s early Asian session, the EUR/USD pair softened and got close to 1.0400. Trading volumes were likely to be low as it was ahead of the holiday trading week.
Fed’s Influence on the Greenback
The US Federal Reserve (Fed) is expected to deliver fewer rate cuts in 2025. This expectation provides some support for the Greenback. The Fed lowered its benchmark interest rate by another quarter point last week. According to the latest quarterly dot plot, the Fed committee has reduced its expectations for rate reductions in 2025 and beyond. Now, the Fed predicts just a 50 basis points (bps) reduction, which means two rate cuts, down from four quarter-point cuts. A renewed “higher for longer” policy approach by the Fed will affect the final trading days of the year and might boost the US Dollar (USD) more widely.
ECB’s Impact on the Euro
The Euro (EUR) weakened. There are rising bets of further rate reduction by the European Central Bank (ECB). The ECB President Christine Lagarde said on Monday that the Eurozone was getting “very close” to reaching the ECB’s medium-term inflation target, as reported by the Financial Times on Monday. Lagarde also stated that if inflation continued to ease towards its 2% goal, the central bank would cut interest rates further because curbing growth was no longer necessary.
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