Ella 
EUR/USD weakened in Asia on Monday. EUR/USD’s losses were supported by a recovery in demand for the U.S. dollar amid rising geopolitical tensions in the Middle East. Investors will focus on Wednesday’s Federal Open Market Committee (FOMC) meeting. EUR/USD is currently trading around 1.0847, with an intraday decline of 0.07%.
Last week, the ECB decided to keep its key interest rate unchanged as underlying inflation fell in December. European Central Bank President Christine Lagarde warned that the euro zone is likely to experience stagflation in the final quarter of 2023, outlining the risks of a further economic slowdown. Lagarde further stated that the ECB will still insist on relying on economic data to formulate policies and will make decisions based on the economic conditions at the time of each meeting.
In addition, ECB Governing Council member Klaas Knot said on Sunday that the central bank needs to see evidence of slowing wage growth in the euro zone before cutting interest rates. However, markets have ramped up bets on rate cuts, with the ECB expected to cut interest rates by 50 basis points by June and 140 basis points by December 2024. This could therefore generate some selling pressure on the euro (EUR) and be bearish for EUR/USD.
The Federal Open Market Committee (FOMC) kept interest rates steady at its last meeting in December 2024, and traders expect the Fed to keep rates unchanged at 5.25%-5.50% at its January meeting on Wednesday. Traders put the chance of the Fed cutting interest rates for the first time in March at around 48.2%, down from 88% a month ago.
