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In early European trading on Tuesday, the EURUSD expanded back to around 1.0985. The pair is trading higher amid slight weakness in the US dollar (USD). However, the euro’s upside against the dollar may be limited as traders anticipate that the U.S. Federal Reserve’s (Fed) interest rate cut in November may be smaller.
The European Central Bank (ECB) will cut interest rates next week as sluggish economic growth lifts inflation below Risk to the 2% target. The comments support market pricing for another 1,500 basis points rate cut by the European Central Bank over the next twelve months.
ECB Isabel Schnabel will speak later on Tuesday, and German industrial production data will also be released. Dovish comments from ECB policymakers or any signs of weakness in Europe’s largest economy could drag the Eurozone (EUR) lower against the US dollar.
In the U.S. dollar, encouraging U.S. employment data on Friday raised expectations that the Federal Reserve will cut interest rates by 25 basis points (bps) at the November central bank meeting. This, in turn, could broadly boost the US dollar (USD) and potentially cap EURUSD’s upside. There is an 85% chance that the Fed will cut interest rates by 25 basis points, up from 31.1% last week, according to CME FedWatch Tool.
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