The EUR/USD pair has attracted dip-buying during the Asian session on Thursday, reversing some of the previous day’s retracement slide from the weekly top. Currently trading around mid-1.0900s, the spot prices are up just over 0.15% for the day. This upward movement is driven by a modest downtick in the US Dollar (USD).
Investors are becoming increasingly convinced that the Federal Reserve (Fed) will start cutting interest rates early next year. This belief has led to a decline in the US Treasury bond yields, with the yield on the benchmark 10-year US government bond dropping to its lowest level since July. Despite Wednesday’s upbeat US macro data-inspired gains, the USD has failed to capitalize on this due to the lower bond yields.
Another factor contributing to the positive traction of the EUR/USD pair is the modest recovery in the US equity futures. Following an overnight late sell-off, the rebound undermines the safe-haven status of the US Dollar, providing support to the shared currency.
The EUR/USD pair is also drawing support from reduced bets for early interest rate cuts by the European Central Bank (ECB). The chief of the Slovak central bank, Peter Kazimir, stated that any talk of the ECB cutting rates is premature. Additionally, ECB policymaker Bostjan Vasle emphasized that the central bank will need at least until spring before reassessing its policy outlook. This indicates that market expectations for an interest rate cut in March or April are premature, acting as a tailwind for the EUR/USD pair.
Despite the fundamental backdrop favoring bulls, there is uncertainty over the timing of when the Fed will begin easing its monetary policy. Some Fed officials have pushed back against expectations that the central bank will completely shift away from its hawkish stance. This uncertainty may help limit losses for the USD.
Traders may also refrain from placing aggressive USD bearish bets ahead of the release of the US Core PCE Price Index on Friday. This economic indicator will influence the Fed’s future policy decision and provide fresh impetus to the market.
Market participants are now looking to the US economic docket for further trading opportunities. The final Q3 GDP print, the Weekly Initial Jobless Claims data, and the Philly Fed Manufacturing Index will impact the USD price dynamics and broader risk sentiment during the early North American session.
The EUR/USD pair has regained positive traction amidst a modest USD downtick. The fundamental backdrop, including reduced bets for early interest rate cuts by the ECB and lower US Treasury bond yields, favors the bulls. However, uncertainty surrounding the Fed’s monetary policy and the upcoming US economic releases contribute to a cautious trading atmosphere. Traders will closely monitor the USD price dynamics and broader market sentiment for short-term trading opportunities.