Euro Pressured on Dovish ECB Outlook as Dollar Bulls Eye 1.04
With the Federal Reserve pausing rate hikes, the euro faces headwinds as the European Central Bank (ECB) is poised to adopt a dovish stance.
Markets fully anticipate a 25-basis-point rate cut by the ECB today, with a slim chance of a 50-basis-point reduction given the weakening EU economy. Economists warn of a waning inflationary pulse and underscore the need for further stimulus.
If ECB President Christine Lagarde reinforces a dovish outlook, it could intensify pressure on the euro. The single currency remains unchanged at $1.0425, having found support near $1.0380.
Meanwhile, the dollar has weakened marginally against both the yen and a currency basket. However, Treasury yields have rallied after Fed Chair Jerome Powell hinted at continued rate cuts, despite keeping rates unchanged.
Fed fund futures now imply around 47 basis points of easing this year, with a 73% probability of another cut by June.
Data on U.S. advance GDP is expected to indicate a modest growth slowdown in the fourth quarter, but forecasts vary widely, leaving room for a market-moving surprise.
In other rate-related news, Canada and Sweden cut rates by 25 basis points overnight, while Brazil's central bank increased rates by 1 percentage point, signaling further tightening.