- Differences in monetary policy outlooks between the Fed and ECB could cause EUR/USD to fall to parity.
- Markets are pricing in a 113 basis point cut in ECB interest rates this year.
- The US Federal Reserve is expected to pause its easing cycle at its January meeting.
EUR/USD fell slightly after registering gains in the previous session, trading around 1.0300 in Asian time on Monday. Traders are expected to closely monitor the Eurozone HCOB Purchasing Managers' Index (PMI) and German Consumer Price Index (CPI) preliminary figures to be released later in the day.
EUR/USD is on the decline as market analysts expect further declines, possibly reaching parity, due to divergence in the monetary policy outlook of the Federal Reserve (Fed) and the European Central Bank (ECB). Facing headwinds.
In the euro area, ECB policymakers support a continuation of the current pace of monetary easing. Markets are already pricing in a 113 basis point (bp) cut in ECB interest rates this year, and have signaled at least four cuts of 25 bps. The outlook reflects growing concerns that inflation in the euro zone is below the ECB's 2% target.
On Thursday, ECB Governing Council member and Bank of Greece Governor Yanis Stournaras said in an interview on Sky Radio that the central bank's benchmark interest rate should fall to “around 2%” by “this autumn”. This suggests that the ECB is likely to lower deposit facility rates at each of its next four policy meetings.
In contrast, the US Federal Reserve (Fed) is expected to pause its easing cycle at its January meeting, following three consecutive interest rate cuts. Policymakers expect the federal funds rate to reach 3.9% by the end of the year and expect only two rate cuts in 2025, according to the latest dot plot from the Fed's Economic Forecast Summary. There is.
Federal Reserve officials have also signaled a more cautious approach to rate cuts in 2025. On Friday, Richmond Fed President Thomas Barkin stressed that benchmark interest rates should remain subdued until there is greater confidence that inflation will return to the 2% target. Similarly, Fed President Adriana Kugler and San Francisco Fed President Mary Daley highlighted the difficult balancing act facing U.S. central bankers as they seek to slow the pace of monetary easing this year.
economic indicators
Consumer price index (month-on-month)
Consumer Price Index (CPI) published by the German Statistical Office Destatis Measures the average price change of all goods and services purchased by households for consumption on a monthly basis. CPI is the main indicator that measures inflation and changes in purchasing trends. Monthly change compares the product price of the base month and the previous month. High numbers are bullish for the euro (EUR), while low numbers are bearish.
