EUR/USD Vulnerable Near 1.0460 Amid ECB-Fed Divergence

The EUR/USD pair remains under pressure during Friday’s Asian session, hitting a near three-week low around 1.0455. The prevailing market sentiment points to further downside risks, suggesting an extension of the pair’s recent downtrend.

The euro remains weighed down by the European Central Bank’s (ECB) dovish stance and growing concerns about the Eurozone’s weakening economic outlook. On Thursday, the ECB implemented its fourth rate cut of the year and hinted at potential further easing in 2025. This contrasts sharply with expectations of a less dovish Federal Reserve (Fed), reinforcing the bearish outlook for EUR/USD.

In the United States, the Consumer Price Index (CPI) and Producer Price Index (PPI) data released this week indicate stagnation in progress toward the Fed’s 2% inflation target. Moreover, market sentiment increasingly suggests that U.S. President Donald Trump’s expansionary policies could amplify inflationary pressures. This scenario could prompt the Fed to adopt a more cautious approach to rate cuts, further supporting the US Dollar (USD).

The USD’s strength is also bolstered by rising US Treasury yields, which recently touched new monthly highs. Geopolitical risks, including the ongoing Russia-Ukraine war, Middle East tensions, and trade war concerns, have added to the demand for the safe-haven greenback, intensifying downward pressure on the EUR/USD pair.

However, traders appear hesitant to make significant moves ahead of next week’s critical two-day Federal Open Market Committee (FOMC) policy meeting. The meeting’s outcome will likely provide fresh insights into the Fed’s rate-cut trajectory, influencing the near-term direction of the USD and EUR/USD pair. Despite this caution, the current fundamental landscape continues to favor bearish traders.