Market Analysis

The EUR/USD pair continues to correct, dipping further to around 1.0870 during Friday’s European session. The major currency pair has weakened due to several factors: strong speculation that the European Central Bank (ECB) will implement two additional interest rate cuts this year and a notable recovery in the US Dollar (USD).

On Thursday, the ECB maintained its key rates at their current levels. ECB President Christine Lagarde avoided committing to a specific path for rate cuts.

During late Asian trading hours on Friday, ECB policymaker Francois Villeroy de Galhau, in an interview on French radio BFM Business, indicated that market expectations for the ECB to deliver two more rate cuts this year are valid, with potential policy tightening resuming from the September meeting and again in December if necessary.

Additionally, the ECB’s Survey of Professional Forecasters (SPF) released on Friday projected that price pressures would remain close to 2.4%, returning to 2.0% in 2025, as President Lagarde indicated in Thursday’s press conference. The ECB also revised the growth forecast for 2025 down to 0.7% from the previous estimate of 0.5%.

On the other side of the Atlantic, the US Dollar has rebounded strongly. The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, has risen to 104.30 from a near four-month low of 103.70.

The US Dollar’s recovery is fueled by increasing speculation that Donald Trump will win the upcoming United States (US) presidential elections later this year.

Paraphrasing text from "FX Street" all rights reserved by the original author.