EUR/USD Sees Continued Decline Amid US Dollar Strength
The EUR/USD currency pair has experienced five consecutive days of losses, trading around 1.1510 during the Asian session on Tuesday. The downturn is attributed to increased support for the US dollar, driven by cautious sentiments surrounding the Federal Reserve’s upcoming December policy decisions.
In a recent press briefing, Fed Chairman Jerome Powell indicated that a rate cut in December is not guaranteed. He emphasized the necessity for policymakers to adopt a wait-and-see perspective until regular data reporting resumes. Notably, traders now anticipate a 65% probability of a rate cut, a notable drop from 94% just a week prior, as per the CME FedWatch tool.
However, the US dollar might encounter obstacles as a prolonged government shutdown raises concerns among traders, which could impact the US economy adversely. The deadlock in Congress over funding has now stretched into its sixth week, making a resolution seem distant. Many federal workers are currently receiving no pay, which amplifies uncertainties regarding economic stability.
On the other hand, the euro might find support from market sentiments predicting that the European Central Bank (ECB) will refrain from making further interest rate changes this year. This expectation could cushion the drop in the EUR/USD pair.
The ECB decided to keep interest rates steady for the third straight time during its meeting in October. The bank noted a stable inflation outlook, ongoing economic growth, and prevailing uncertainties. Recent data suggests that inflation in the eurozone has eased slightly above the ECB’s 2% target, while GDP growth for the third quarter was stronger than anticipated. Furthermore, business surveys conducted in October indicated an overall improvement in market sentiment.
ECB policymaker François Villeroy de Galhau commented that the ECB is in a favorable position following the recent policy decisions, though he acknowledged that this position could evolve. Latvian Central Bank Governor Martins Kazaks remarked that inflation and growth risks in the eurozone appear more balanced. Kazaks mentioned that while the central bank is prepared to act if necessary, it is important to avoid impulsive measures.
