The EUR/USD pair has maintained its downward trend for the fourth consecutive session, hovering around 1.0920 during the Asian trading hours on Monday. The Euro is facing downward pressure as the European Central Bank (ECB) gears up for its monetary policy decision scheduled for Thursday.
The ECB is widely expected to cut its Main Refinancing Operations Rate by 25 basis points. Officials have indicated the possibility of further reductions to address the economic challenges within the European Union. The central bank has already lowered rates twice this year and is anticipated to implement incremental 25 basis point cuts in upcoming meetings.
On the geopolitical front, escalating tensions in the Middle East have raised concerns about a broader regional conflict, which has strengthened the safe-haven US Dollar and added further pressure on the risk-sensitive EUR/USD pair. Reports indicate that at least four Israeli soldiers were killed, and over 60 individuals were injured in a drone attack in north-central Israel on Sunday, as noted by CNN.
The decline of the EUR/USD pair can also be attributed to a stronger US Dollar (USD), bolstered by expectations that the US Federal Reserve (Fed) will slow the pace of interest rate reductions more than previously anticipated.
Traders are anticipating a 25 basis point (bps) rate cut from the Fed in November, following the release of the Producer Price Index (PPI) data from the United States last Friday. According to the CME FedWatch Tool, markets are pricing in an 86.9% chance of a 25 basis point rate cut in November, with no expectations for a 50-basis-point reduction.
In September, the annual Producer Price Index (PPI) rose by 1.8%, down from a 1.9% increase in August and exceeding market expectations of 1.6%. Meanwhile, the annual core PPI, which excludes food and energy prices, climbed by 2.8%, surpassing analysts’ forecasts of 2.7%.
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