The EUR/USD pair continues to face downward pressure, oscillating around the 1.0360 level during the Asian session on Friday. The pair remains close to a near one-month low touched on Thursday and is set to close the week at its lowest level since November 2022.
The shared currency‘s underperformance is largely attributed to the divergent monetary policy stances of the European Central Bank (ECB) and the Federal Reserve (Fed). Last Thursday, the ECB implemented its fourth rate cut of the year and left the possibility of further easing in 2025 open. In contrast, the Fed signaled earlier this week that it would slow the pace of rate cuts in 2025. This policy divergence points to a continued downside bias for the EUR/USD pair.
Fed’s Hawkish Stance and Geopolitical Risks Support USD
The Fed’s hawkish shift, combined with ongoing geopolitical risks and concerns about US President-elect Donald Trump’s tariff plans, continues to support the US Dollar. Additionally, the looming threat of a US government shutdown ahead of Friday’s deadline further weighs on investor sentiment, bolstering the USD and keeping it near a two-year high after the Federal Open Market Committee (FOMC) meeting.
This negative outlook for the EUR/USD pair is further validated as the US Dollar remains resilient, preserving its strong gains. The market now turns its focus to the upcoming release of the US Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred inflation gauge, which could provide further momentum for the USD.
Looking Ahead: USD Bulls in Control
While the USD may take a brief pause ahead of the PCE data, the overall fundamental backdrop remains firmly in favor of the US Dollar. Any potential negative reaction to weaker US data is likely to be short-lived, reinforcing the outlook for continued losses for the EUR/USD pair.
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