EUR/USD is trading within a tight range around 1.0400. This is happening in a week that’s been shortened by holidays. The trading volumes are thin. In Tuesday’s European session, the pair is consolidating around 1.0400. The Forex markets have holidays on Wednesday and Thursday for Christmas Day and Boxing Day respectively. Because of these holidays, the price action of the pair has been muted.
ECB’s Stance on Inflation and Outlook
The European Central Bank (ECB) President Christine Lagarde told the Financial Times (FT) in an interview that the central bank is “very close” to declaring that inflation has been brought sustainably to its medium-term target of 2%. So, the Euro (EUR) weakened a bit on Monday. But Lagarde also warned that the central bank should stay watchful for inflation in the services sector. While the headline Eurozone inflation has gone down to 2.2%, the service inflation is still high at 3.9%.
Lagarde’s Views on Trade Tariffs
When asked about how the European Union (EU) should handle incoming tariffs from United States (US) President-elect Donald Trump, Lagarde said that “retaliation was a bad approach because I think that overall trade restrictions followed by retaliation and this tit-for-tat, conflictual way of dealing with trade is just bad for the global economy at large”.
ECB’s Expected Rate Cuts and Bets
ECB dovish bets for 2025 are still there. That’s because there are firm expectations that Eurozone inflation will return to the bank’s target of 2%. Traders think that the ECB will cut its Deposit Facility rate by 25 basis points (bps) in each of the next four policy meetings.
UBS’s Prediction on Fed’s Rate Cuts
According to UBS, the Fed will make two interest rate cuts next year. These cuts are expected to happen in June and September.
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