EUR/USD extended its gains for the third consecutive day on Monday, trading around 1.0430 during Asian hours. The rally is largely attributed to comments from European Central Bank (ECB) Governing Council member Robert Holzmann.
On Saturday, Holzmann suggested that the ECB may delay its next interest rate cut following a recent rise in inflation. He also stated, “I don’t see rate increases at the moment,” and noted that former President Trump’s tariffs could slow overall growth while also generating inflationary pressures.
Despite the upside momentum, the EUR/USD pair’s potential gains may be limited as markets digest the US Federal Reserve’s (Fed) more hawkish stance. In its December meeting, the Fed lowered its benchmark interest rate by a quarter point, with its latest Dot Plots indicating two more rate cuts in the coming year.
However, Fed Chair Jerome Powell signaled earlier this month that officials would “be cautious about further cuts,” following the expected quarter-point reduction. This hawkish tone from the Fed is likely to support the US Dollar (USD) and could create headwinds for EUR/USD in the short term.
Economists generally expect that President-elect Donald Trump’s incoming administration will implement tax cuts, tariffs, and deregulation, policies likely to spur inflation and potentially influence the Fed’s outlook for 2024.
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