EUR/USD Faces Downward Pressure as ECB Signals Cautious Rate Cuts

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The EUR/USD continues to decline for the fourth consecutive day, trading near 1.0350 during the Asian session on Thursday. The Euro faces pressure as the European Central Bank (ECB) maintains a dovish outlook on interest rates for 2025.

In 2024, the ECB lowered its Deposit Facility rate by 100 basis points (bps) to 3% and is expected to reduce it further to 2%—the neutral rate—by June 2025. This suggests that the central bank is likely to cut its key borrowing rates by 25 bps at each meeting in the first half of this year.

On Wednesday, ECB President Christine Lagarde stated the central bank’s goal to reach its 2% inflation target by 2025. She noted, "We made significant progress in 2024 in reducing inflation, and we are optimistic that 2025 will be the year we achieve our target, in line with our strategy." She also emphasized that the ECB will continue efforts to ensure inflation stabilizes at the 2% medium-term target.

Meanwhile, the US Dollar Index (DXY), which tracks the US Dollar against six major currencies, rose to multi-year highs around 108.50, driven by the US Federal Reserve’s hawkish stance.

The Federal Reserve may adopt a more cautious approach to rate cuts in 2025, reflecting uncertainties surrounding policy changes under the incoming Trump administration’s economic strategy.

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