EUR/USD slumps as USD bounces back on Fed's fewer rate cuts guidance

EUR/USD declines as ECB Lagarde is confident that inflation will sustainably return to the bank's target of 2% sooner.
The Fed sees fewer interest rate cuts in 2025 as the disinflation process stalls and amid increasing uncertainty over Trump’s policies.
Trading volume is expected to thin out due to fewer trading days this week amid holidays on account of Christmas Eve and Boxing Day.

EUR/USD slides below 1.0400 in Monday's European session as the US Dollar (USD) bounces back on Monday after a sharp sell-off on Friday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, climbs to near 108.20. The Greenback gains as Federal Reserve (Fed) policymakers see the central bank delivering fewer interest rate cuts next year amid a slowdown in the disinflation process and the uncertainty over the impact on the economy of incoming immigration, trade, and tax policies by President-elect Donald Trump.

Cleveland Fed President Beth Hammack, the only official who voted for leaving interest rates unchanged in the policy meeting last Wednesday, said on Friday that she prefers to hold interest rates steady "until the Fed gets further evidence that inflation is resuming its path to its 2% objective,” Reuters reported.

On Friday, Chicago Fed President Austan Goolsbee told in an interview with CNBC that the uncertainty over Trump’s policies after taking office compelled him to project fewer interest rate cuts for 2025 while he had previously anticipated a 100-basis points (bps) interest rate reduction.

The sell-off in the US Dollar on Friday was triggered by slower-than-expected growth in the United States (US) Personal Consumption Expenditure Price Index (PCE). Core PCE inflation, which is the Federal Reserve’s (Fed) preferred inflation gauge, rose steadily by 2.8% but slower than estimates of 2.9%. Month-on-month, headline, and core PCE inflation grew marginally by 0.1%, which raised some uncertainty over whether the Fed will follow a shallow rate-cut path in 2025.

Monday’s economic calendar is light. On Tuesday, investors will focus on the US Durable Goods Orders data for November. Economists expect orders to have declined by 0.4% after a 0.3% increase in October.

Daily digest market movers: EUR/USD slides sharply as ECB Lagarde said that a victory over inflation is near

EUR/USD falls sharply after failing to extend its upside above Friday's high of 1.0445 in Monday's European session. The major currency pair declines amid Euro’s (EUR) underperformance as European Central Bank (ECB) President Christine Lagarde said she remains confident about further progress in disinflation in an interview with the Financial Times (FT) published Monday. “We're getting very close to that stage when we can declare that we have sustainably brought inflation to our medium-term 2%”, Lagarde said.
The ECB has cut its Deposit Facility rate by 100 bps this year and is expected to deliver another 100-bps interest rate reduction next year amid deepening Eurozone economic risks and inflation remaining under control.
Almost all ECB policymakers have agreed to market expectations for a consistent reduction in interest rates until it reaches 2%, which they see as a neutral rate to avoid risks of inflation undershooting the bank’s target of 2%.

Euro PRICE Today

The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Swiss Franc.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.35%	0.15%	0.27%	0.19%	-0.06%	0.05%	0.34%
EUR	-0.35%		-0.22%	-0.15%	-0.18%	-0.34%	-0.32%	-0.02%
GBP	-0.15%	0.22%		0.02%	0.05%	-0.12%	-0.09%	0.22%
JPY	-0.27%	0.15%	-0.02%		-0.02%	-0.25%	-0.18%	0.08%
CAD	-0.19%	0.18%	-0.05%	0.02%		-0.20%	-0.14%	0.16%
AUD	0.06%	0.34%	0.12%	0.25%	0.20%		0.03%	0.33%
NZD	-0.05%	0.32%	0.09%	0.18%	0.14%	-0.03%		0.26%
CHF	-0.34%	0.02%	-0.22%	-0.08%	-0.16%	-0.33%	-0.26%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).

Technical Analysis: EUR/USD falls from the intraday high of 1.0440

EUR/USD drops from the key resistance of 1.0440 but still holds the major support of 1.0350. The outlook of the major currency pair remains strongly bearish as all short-to-long-term Exponential Moving Averages (EMAs) are declining.

The 14-day Relative Strength Index (RSI) bounces back to near 40.00. A fresh downside momentum could trigger if the oscillator fails to sustain above that level.

Looking down, the asset could decline to near the round-level support of 1.0200 after breaking below the two-year low of 1.0330. Conversely, the 20-day EMA near 1.0500 will be the key barrier for the Euro bulls.

Economic Indicator

Core Personal Consumption Expenditures - Price Index (YoY)

The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures." Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Why it matters to traders?

After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.

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