EUR/USD Holds Steady Above 1.0500 Ahead of Fed Decision

EUR/USD extends its upward momentum, trading near 1.0520 during Monday’s Asian session. The pair’s gains are supported by a weakening US Dollar (USD), driven by subdued US Treasury yields as markets anticipate the Federal Reserve’s (Fed) interest rate decision scheduled for Wednesday.

The Fed is widely expected to announce a 25 basis point rate cut during its final monetary policy meeting of 2024. Analysts suggest the central bank may opt for a rate cut while signaling a pause in future adjustments, considering the resilience of the US economy and inflation remaining above the 2% target. The CME FedWatch tool indicates a near-certain market consensus for a quarter-point cut at December’s meeting.

Investors will closely watch Fed Chair Jerome Powell’s press conference and the updated Dot Plot projections. Earlier this month, Powell struck a cautious tone, remarking, “We can afford to be a little more cautious as we try to find neutral,” signaling no urgency to accelerate rate reductions.

The Euro (EUR) also finds support from political developments in France, as President Emmanuel Macron appointed centrist ally François Bayrou as Prime Minister. This move is expected to enhance political stability following the resignation of Michel Barnier after losing a parliamentary confidence vote.

Meanwhile, European Central Bank (ECB) policymaker Robert Holzmann emphasized the need for prudence in rate policy. On Friday, Holzmann stated that cutting rates merely to stimulate growth would be inappropriate, reiterating the ECB’s commitment to maintaining price stability. He remarked, “Lowering rates now to boost the economy would contradict our current stance,” as reported by Bloomberg.