- EUR/USD maintains strength, trading around 1.0520 during Monday’s Asian session.
- The US Federal Reserve is expected to announce a 25 basis point rate cut at its final monetary policy meeting of 2024.
- The CME FedWatch tool indicates near-full market pricing of a quarter-point cut.
- The Euro finds support following François Bayrou’s appointment as French Prime Minister by President Emmanuel Macron, boosting political stability prospects.
Market Drivers
1. Federal Reserve Expectations
The US Dollar remains under pressure as markets anticipate a dovish stance from the Federal Reserve this week. Analysts widely expect a 25 basis point rate cut, reflecting the Fed’s efforts to align policy with inflation that remains above 2%.
Fed Chair Jerome Powell has signaled a cautious approach to further easing, recently stating, “We can afford to be a little more cautious as we try to find neutral.” Powell emphasized the need for patience, indicating that the Fed is unlikely to rush into additional cuts.
Markets will scrutinize Powell’s post-meeting press conference and the updated Dot Plot projections, which may provide further insights into the central bank’s 2025 policy trajectory.
2. Political Stability in France
The Euro received a boost after President Emmanuel Macron appointed centrist ally François Bayrou as Prime Minister. The move comes after the resignation of Michel Barnier, whose government collapsed due to dissatisfaction from both far-right and left-wing factions over fiscal policies. Bayrou’s appointment signals potential political stability in France, an outcome that supports the Euro.
3. European Central Bank (ECB) Stance
While the Euro gained traction, ECB officials have recently maintained a cautious tone. Governing Council member Robert Holzmann warned against cutting interest rates solely to stimulate growth, stating that the ECB’s mandate is to ensure price stability. Holzmann added, “Lowering rates now to boost the economy would contradict our current stance,” reflecting a commitment to a balanced approach.
Outlook
The EUR/USD pair remains well-supported ahead of Wednesday’s Fed meeting, as the US Dollar faces downward pressure from falling Treasury yields and dovish Fed expectations. However, potential upside in the Euro may be capped by the ECB’s cautious outlook.
Traders will focus on Powell’s remarks and the Fed’s Dot Plot updates, as well as ongoing developments in European political and economic landscapes, to guide the next moves for EUR/USD.
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