EUR/USD holds steady around 1.0350 as traders await German Retail Sales data and the FOMC Minutes.

EUR/USD Advances Near 1.0350 Ahead of Key Economic Data and FOMC Minutes

The EUR/USD pair edges higher towards 1.0350 during the early European session on Wednesday. However, the pair’s upward momentum may face headwinds due to expectations of slower interest rate cuts by the Federal Reserve (Fed) in 2025. Traders are gearing up for the release of the Federal Open Market Committee (FOMC) minutes later today, which could offer further insights into the Fed’s policy outlook.

US Economic Data Strengthens the Dollar

Recent robust US economic data has bolstered the greenback, suggesting the Fed might keep interest rates elevated for longer. The US Services PMI surged to 54.1 in December, beating both the previous reading of 52.1 and the market consensus of 53.3, as reported by the Institute for Supply Management (ISM) on Tuesday. Additionally, JOLTS Job Openings climbed to 8.09 million in November, surpassing October’s 7.83 million and exceeding expectations of 7.7 million.

Hawkish Fed Remarks Add to USD Strength

Federal Reserve officials have echoed caution on rate cuts, further supporting the US dollar. Atlanta Fed President Raphael Bostic emphasized that inflation is on track to gradually decline towards the Fed’s 2% target. However, he highlighted the need for caution in policy adjustments, given the uneven progress on inflation. Similarly, Fed Governor Lisa Cook pointed to the resilience of the labor market and persistent inflation as reasons for a more measured approach to rate reductions.

Euro Faces Pressure Amid ECB Rate Expectations

On the European front, the Euro struggles against the USD as markets anticipate aggressive European Central Bank (ECB) rate cuts in 2025. Despite ongoing inflation concerns, traders expect the ECB to reduce rates by 25 basis points at its upcoming meeting on January 30, with cumulative cuts exceeding 100 bps over the year. These expectations weigh on the euro, limiting its potential gains.

Key Focus Ahead

With German Retail Sales data and the FOMC Minutes on the horizon, EUR/USD traders remain cautious. Any surprises in the US or Eurozone economic indicators could sway the pair’s direction in the coming sessions.

Stay tuned for updates on the latest developments in global financial markets.