EUR/USD made a significant climb on Wednesday, edging towards 1.0350, building on the gains from Tuesday. This surge comes as the US Dollar takes a hit following mixed data from the US Consumer Price Index (CPI) for December. The US Dollar Index (DXY), which measures the dollar’s strength against a select group of major currencies, dropped notably to around 108.70.
The CPI report painted a varied picture: core inflation, which excludes the often-volatile sectors of food and energy, ticked up by 3.2%. This was a slower increase than analysts had anticipated, and lower than November’s 3.3%. Meanwhile, the overall inflation rate accelerated to 2.9%, aligning with expectations. On a month-to-month basis, headline CPI saw a rise of 0.4%, outpacing predictions and the previous 0.3% increase. The core inflation rate, however, climbed as expected by 0.2%, slightly down from the 0.3% recorded in November.
These mixed signals from inflation seem unlikely to sway the current market sentiment that the Federal Reserve (Fed) will enact fewer rate cuts this year. Investors are factoring in the policies likely to be implemented in the Trump administration, which include immigration restrictions, tax reductions, and increased tariffs, all expected to spur economic growth.
According to the CME FedWatch tool, traders are betting on the Fed cutting rates just once this year, rather than the twice predicted in the Fed’s December Summary of Economic Projections (SEP). These adjustments in trader expectations came after unexpectedly strong Nonfarm Payrolls (NFP) data was released last Friday in the US.
Daily Digest Market Movers: EUR/USD Rides Higher as Dollar Weakens
EUR/USD climbs towards 1.0350, capitalizing on the weakening US Dollar. The Euro, however, has faced challenges against other major currencies on Wednesday, with a cautious market eyeing President-elect Donald Trump’s return to the White House. The anticipated higher import tariffs from his administration are expected to impact the Eurozone by making exports more expensive for US buyers.
Concerns about the Eurozone’s economic growth and generally stable price pressures have elevated expectations of further interest rate cuts by the European Central Bank (ECB) throughout the year. The ECB reduced its Deposit Facility Rate by 100 basis points (bps) in 2024 and is predicted to slash another full percentage point by mid-summer to reach 2%.
In remarks during Wednesday’s European session, ECB policymaker and Governor of the Bank of France, François Villeroy de Galhau, commented that it seems practical for rates to hit 2% by summer, emphasizing that they have almost won "the battle against inflation." While he acknowledged "downside risks to French growth," he confidently stated a recession is not on the horizon.
Nonetheless, not all agree on the path forward. While many ECB policymakers are aligned with expectations for a 25 bps rate reduction at each of the next four policy meetings, ECB policymaker and Austrian Central Bank Governor Robert Holzmann suggested that the journey to lower rates isn’t as obvious as it appears. Holzmann also pointed out that core inflation remains closer to 3% than 2%, underscoring energy-related challenges that may influence ECB decision-making.
Technical Analysis: EUR/USD’s Rebound Nears 1.0350
The EUR/USD is bouncing back towards the 1.0300 mark after recovering from a low of 1.0175 reached earlier this week. The currency pair’s rebound is driven by a divergence in momentum and price behavior, with the 14-day Relative Strength Index (RSI) forming a higher low near 35.00, while the price hit lower lows.
Despite this recovery, the outlook for the Euro remains bearish, as all short-to-long-term Exponential Moving Averages (EMAs) continue their downward trend. The crucial support level to watch is the low of 1.0175 from Monday, while significant resistance lies at the January 6 high of 1.0437 for any Euro bulls.
Euro Price Today
Here’s a quick look at how the Euro has performed against major currencies today. The Euro registered considerable strength against the US Dollar, highlighting a dynamic day in currency markets:
- EUR/USD: Euro up by 0.43%
- EUR/GBP: Euro dipped by 0.37%
- EUR/JPY: Euro up by 0.61%
The percentage changes indicate how the Euro is faring against each currency, with the base currency located in the left column and the quoted currency at the top row.
