Title: EUR/USD Extends Losses as Traders Scale Back Federal Reserve Rate Cut Expectations
Author: Based on original reporting by Pablo Piovano at FXStreet
The EUR/USD currency pair continued to decline sharply in Tuesday’s European trading session, as market participants further reduced their expectations for imminent interest rate cuts by the U.S. Federal Reserve. The pair dropped to levels near 1.0920, marking its lowest point in over a week and representing significant downward pressure for the euro against the dollar.
This recent setback for the euro comes amid a reassessment by investors concerning the Federal Reserve’s monetary policy path moving into 2025. Data releases and commentary from U.S. policy officials have led to a recalibration of forecasts concerning when and how often the Fed might ease rates.
Below is an in-depth analysis of the factors affecting EUR/USD performance, the broader market reaction, recent U.S. and Eurozone data releases, as well as potential implications for future trading sessions.
Key Points:
– EUR/USD falls to near 1.0920, the lowest in more than a week
– Dollar strength returns on reduced Fed rate-cut bets
– U.S. economic data continues to reflect resilience
– European Central Bank expected to remain cautious on tightening
– Markets await pivotal U.S. data and Fed guidance
EUR/USD Weakens on Federal Reserve Sentiment Shift
After hitting multi-month highs recently, the EUR/USD pair has lost momentum. Selling pressure mounted following stronger-than-expected U.S. economic data, which diminished prospects of a dovish pivot by the Federal Reserve in the near term. Traders who had previously priced in multiple rate cuts in 2024 and 2025 found their expectations increasingly challenged by hawkish signals and the persistence of core inflationary pressures.
– As a result, EUR/USD fell around 0.3% early Tuesday
– Pair posted its third consecutive daily loss
– Broader dollar rally put further pressure on speculative euro positions
– U.S. 2-year Treasury yields climbed, reversing some previous declines
The Dollar Index (DXY), which tracks the greenback against a basket of key currencies, saw a firm revival and advanced beyond the 104 level. Its uptick signaled increased demand for the dollar as yields adjusted in favor of holding U.S. assets.
U.S. Data Signals Ongoing Economic Resilience
A series of recent U.S. macroeconomic releases have contributed to the shift in sentiment across forex markets. Investors had begun to expect that inflationary pressures were moderating swiftly, potentially enabling the Federal Reserve to ease borrowing costs in 2024. However, hard data continues to indicate that the U.S. economy remains buoyant.
Key data points include:
– Higher-than-expected October Core Consumer Price Index (CPI)
– Robust weekly jobless claims, suggesting a steady labor market
– Retail sales figures narrowly beating estimates, underlining consumer strength
– PMI readings supporting expansion in services and manufacturing
These indicators have led analysts to question whether the Fed will feel sufficiently reassured to cut rates three times or more in 2024 as previously forecast. A more conservative policy approach now seems likely unless upcoming data presents a significant downside surprise.
Fed Officials Emphasize Data-Dependence
Public comments from Federal Reserve officials in recent days have echoed a hawkish tone, reinforcing the idea that policymakers are not yet inclined to loosen monetary conditions prematurely.
Highlights of recent Fed communication include:
– Philadelphia Fed President Patrick Harker signaled caution in declaring victory over inflation
– Atlanta Fed President Raphael Bostic indicated he expects only one rate cut in 2024
– Federal Reserve Governor Christopher Waller spoke favorably of restrictive policy to keep inflation on track
These statements suggest that while the Fed acknowledges progress in cooling inflation, it is not confident enough to pivot toward easing just yet. Any decision to reduce rates would require more convincing evidence that inflation is solidly back around the 2% target.
Euro Faces Multiple Headwinds
Read more on EUR/USD trading.