Anna 
During Monday’s European trading session, the EUR/USD pair experienced a decline, approaching the 1.0840 level. The prevailing risk-off sentiment, fueled by heightened geopolitical tensions in the Middle East, has led traders to favor the US Dollar (USD), contributing to the downward pressure on the Euro-Dollar exchange rate.
The Euro (EUR) has been under additional pressure following the European Central Bank (ECB) interest rate decision last Thursday. The ECB opted to keep its Main Refinancing Operations Rate at 4.50% and the Deposit Facility Rate at 4.0%. Furthermore, ECB governing council member Klaas Knot indicated on Sunday that the central bank requires evidence of slowing wage growth in the eurozone before contemplating interest rate cuts.
Despite these statements, market expectations for ECB rate cuts have risen, with speculations of a 50 basis points reduction by June and a more substantial 140 bps cut by December 2024. Eyes are now on the upcoming release of the quarterly Gross Domestic Product (GDP) for the Eurozone and Germany, scheduled for Tuesday.
ECB Vice President Luis de Guindos asserted that interest rate cuts would be considered once there is confidence that inflation aligns with the central bank’s 2.0% target. He highlighted positive developments in inflation recently, suggesting that these favorable trends would eventually influence the ECB’s monetary policy.
The US Dollar Index (DXY) has maintained stability around 103.50, supported by subdued 2-year and 10-year US Treasury yields at 4.33% and 4.11%, respectively. Investors are speculating that the Federal Reserve (Fed) might implement policy easing, given indications of a cooling off of inflation as reflected in the US Core Personal Consumption Expenditures Price Index (PCE).
Traders are expected to closely monitor key economic indicators, particularly Tuesday’s releases of the US Housing Price Index and Consumer Confidence figures. The scrutiny is likely to intensify following the upcoming Federal Open Market Committee (FOMC) statement on Wednesday, providing additional insights into the market dynamics and influencing the EUR/USD pair’s trajectory.
