EUR/USD Struggles Near 1.0460 as ECB-Fed Policy Divergence Weighs

EUR/USD Slides to Three-Week Low Amid Bearish Sentiment

The EUR/USD pair remained under pressure during Friday’s Asian session, touching a near three-week low around the 1.0455 mark. A combination of factors continues to weigh on the shared currency, signaling that the downtrend may persist.

ECB Dovish Stance and Eurozone Weakness Drag the Euro Lower

The European Central Bank’s (ECB) dovish approach remains a key driver behind the Euro’s weakness. On Thursday, the ECB cut interest rates for the fourth time this year and hinted at potential further easing in 2025. This reflects growing concerns about the Eurozone’s struggling economy and contrasts sharply with a more neutral outlook for the US Federal Reserve (Fed).

US Inflation Stalls, Supports USD Strength

Recent US inflation data—the Consumer Price Index (CPI) and Producer Price Index (PPI)—highlighted a plateau in progress toward the Fed’s 2% inflation target. Additionally, market expectations that US President Donald Trump’s fiscal policies could fuel inflationary pressures suggest the Fed may take a more cautious approach to future rate cuts.

These developments have pushed US Treasury bond yields higher, strengthening the US Dollar (USD) and contributing to its recent rally to a fresh monthly peak. The Greenback’s safe-haven appeal is further bolstered by ongoing geopolitical tensions, including the Russia-Ukraine war, Middle East conflicts, and trade war uncertainties.

Market Awaits FOMC Meeting for Fresh Cues

Despite the bearish outlook, traders appear hesitant to take aggressive positions ahead of next week’s crucial Federal Open Market Committee (FOMC) monetary policy meeting. The meeting’s outcome will likely provide clearer guidance on the Fed’s rate-cut trajectory and influence the near-term direction of the EUR/USD pair.

Outlook: Bearish Sentiment Prevails

With the ECB’s dovish tone, Eurozone economic challenges, and the USD’s robust performance, the fundamental backdrop favors further downside for the EUR/USD pair. Short-term market movements, however, will hinge on upcoming events and data releases.

This evolving situation emphasizes the need for forex traders and investors to stay informed and adapt their strategies accordingly. Stay tuned for more updates on the EUR/USD pair and broader market trends.

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