The EUR/USD pair regained upward momentum on Friday, recovering from the modest decline seen the previous day. The pair edged closer to its weekly high but remained below the 1.0600 level. A decisive break above this threshold could pave the way for further gains, extending the recovery from a two-year low touched last Friday.
USD Weakens on Rate Cut Expectations
The US Dollar (USD) struggled to maintain its Thursday gains, touching a fresh two-week low. Market participants are increasingly betting on another 25 basis point rate cut by the Federal Reserve (Fed) in December, which has put downward pressure on the USD. This shift in sentiment is seen as a key factor supporting the EUR/USD pair, although bullish momentum remains cautious ahead of crucial Eurozone inflation data.
Eurozone Inflation Data in Focus
The upcoming consumer inflation figures from the Eurozone will be closely watched, as they could offer clues about the European Central Bank‘s (ECB) next policy move. The release of this data will likely influence demand for the Euro and shape the next direction for the currency pair. Recent hawkish comments from ECB official Isabel Schnabel, which led investors to scale back expectations of a more aggressive rate cut in December, have already provided some support for the Euro.
Mixed Sentiment on ECB and Fed Policies
While markets are still pricing in a slim chance of a 50 basis point rate cut by the ECB in December, these expectations were tempered by weaker-than-expected German consumer inflation figures released on Thursday. This has led to some caution among traders, with many waiting for clearer signals before committing to fresh bullish positions on the EUR/USD.
In addition, expectations that US President-elect Donald Trump’s fiscal policies could drive higher inflation and limit the Fed’s ability to further reduce rates are adding to the uncertainty surrounding the USD. This, coupled with ongoing geopolitical risks, has helped the safe-haven US Dollar to avoid further losses, providing some support to the currency.
Outlook for EUR/USD
Despite the mixed market signals, the EUR/USD pair remains poised to snap a three-week losing streak, with the potential to finish the week on a positive note. However, traders are likely to wait for a decisive move above the 1.0600 level before committing to a sustained bullish outlook, as the pair continues to navigate key economic events and shifting expectations for both the ECB and Fed.
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