The EUR/USD pair opened the week on a weak note, hovering around 1.1860 during Asian trading on Monday. Trading volumes are likely to stay low, particularly with US markets closed for President’s Day and mainland China observing the week-long Lunar New Year break.
However, the drop in EUR/USD might not be too pronounced. Weak January consumer price index (CPI) figures could lead to a softened US dollar (USD), raising the likelihood that the Federal Reserve might consider interest rate cuts later this year.
In January, the U.S. CPI increased by 2.4% compared to the previous year, which is a slowdown from December’s 2.7% and lower than the anticipated 2.5%. On a month-to-month basis, consumer inflation was reported at 0.2%, down from 0.3% and missing analysts’ expectations of 0.3%.
Additionally, there has been a considerable rise in non-farm payrolls, marking the largest increase in over a year, and an unexpected decline in the unemployment rate suggests that the job market is stabilizing. Many market participants expect the Fed to pause interest rate changes in March, with predictions for two cuts of 25 basis points by year-end.
The CME FedWatch tool indicates that investors now believe there’s nearly a 90% chance of the Fed maintaining current interest rates at their March meeting, an increase from 81% just a week earlier. Market forecasts include about two anticipated rate cuts of 25 basis points by December, with a roughly 52% likelihood that the first cut could come in June.
On another note, the euro (EUR) found support from the European Central Bank (ECB), which seems unconcerned about the euro’s recent rise. ECB President Christine Lagarde mentioned that the inflation outlook for the eurozone is “good” and cautioned against overreacting to short-term fluctuations.
