The EUR/USD pair continued its downward correction, trading near 1.0870 during Friday’s European session. This decline is attributed to several factors, including firm speculation that the European Central Bank (ECB) will cut interest rates twice more this year, coupled with a sharp recovery in the US Dollar (USD).
On Thursday, the ECB maintained key interest rates at their current levels. ECB President Christine Lagarde, however, did not commit to a specific path for future rate cuts.
During late Asian trading hours on Friday, ECB policymaker Francois Villeroy de Galhau indicated in an interview with French radio BFM Business that market expectations are leaning towards the ECB implementing two more rate cuts this year. These cuts are anticipated to resume in September, followed by another in December if deemed necessary.
Additionally, the ECB’s Survey of Professional Forecasters (SPF) released on Friday showed that price pressures are expected to remain close to 2.4%, returning to 2.0% by 2025, aligning with projections made by Lagarde during Thursday’s press conference. The survey also revised the growth target for 2025 down to 0.7% from the previous estimate of 0.5%.
In contrast, the US Dollar has seen a strong recovery. The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, climbed to 104.30 from a nearly four-month low of 103.70.
This resurgence of the US Dollar is driven by increasing speculation regarding the outcome of the upcoming United States presidential elections, contributing to the broader market movements.
The interplay between ECB policy expectations and the US Dollar’s rebound underscores the complex dynamics affecting the EUR/USD pair, with investors closely monitoring central bank signals and geopolitical developments.
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