The EUR/USD pair continues its downward trajectory for the fourth consecutive day, hovering around 1.0350 during Thursday’s Asian session. The Euro faces mounting challenges as the European Central Bank (ECB) sticks to a dovish outlook on interest rates for 2024.
The ECB recently cut its Deposit Facility rate by 100 basis points (bps) to 3%, with further reductions expected. By the end of June 2025, the central bank aims to lower this rate to 2%, which is considered the neutral rate. Analysts expect the ECB to implement a 25 basis point rate cut at each of its meetings during the first half of the year.
ECB President Christine Lagarde reinforced the central bank’s commitment to its 2% inflation target for 2025. Speaking on Wednesday, Lagarde expressed confidence in progress made in reducing inflation, stating, “We made significant progress in 2024 in bringing down inflation, and we are hopeful that 2025 will be the year we reach our target.” She added that the ECB would continue its efforts to stabilize inflation sustainably at the 2% medium-term target.
Meanwhile, the US Dollar Index (DXY), which tracks the US Dollar against a basket of six major currencies, rebounded to multi-year highs, trading around 108.50. This surge is fueled by the US Federal Reserve’s hawkish stance, which contrasts with the ECB’s dovish outlook.
The Federal Reserve’s cautious approach to further rate cuts in 2025 signals a potential shift in monetary policy. This pivot is influenced by the uncertainty surrounding economic strategies, particularly in the context of a possible return of the Trump administration.
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