EUR/USD declines to near 1.0870 as ECB Villeroy see rate-cut expectations as appropriate

The EUR/USD pair corrects further to near 1.0870 in Friday’s European session. The major currency pair weakened due to multiple headwinds: firm speculation that the European Central Bank (ECB) will cut interest rates two times more this year and a sharp recovery in the US Dollar (USD).

On Thursday, the ECB left key rates unchanged at their current levels. ECB President Christine Lagarde refrained from committing to a pre-defined rate-cut path.

In Friday’s late Asian trading hours, ECB policymaker Francois Villeroy de Galhau said in an interview on French radio BFM Business that market expectations for the ECB delivering two more rate-cuts this year, with resuming the policy-tightening campaign from the September meeting and following in December as appropriate.

Meanwhile, ECB’s Survey of Professional Forecasters (SPF) showed on Friday that price pressures will remains close to 2.4% and will return to 2.0% in 2025 as projected by ECB Lagarde in the press conference on Thursday. The agency has cut growth target for 2025 to 0.7% from prior estimates of 0.5%.

On the other side of the Atlantic, the US Dollar bounces back strongly. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, moves higher to 104.30 from an almost four-month low of 103.70.

The US Dollar recovers amid growing speculation that Donald Trump will come out victorious in the United States (US) presidential elections later this year.