Ella 
EUR/USD struggled to gain any meaningful traction on the first day of the new week, trading in a tight range around the 1.0600 level throughout early European trading. Spot prices, meanwhile, remain near the lowest levels since March hit on Friday and appear vulnerable to continuing their downward trajectory over the past two-plus months.
The U.S. dollar (USD) holding on near six-month highs amid a hawkish outlook from the Federal Reserve is a key bearish factor for EUR/USD. The Fed reiterated last week that interest rates will remain higher for longer and warned that still-strong U.S. inflation will likely lead to at least one more rate hike before the end of the year. Additionally, policymakers now see only two rate cuts in 2024, compared with four previously expected, which remains a supporting factor for higher Treasury yields.
Indeed, the rate-sensitive two-year Treasury yield is holding steady near its highest level since 2006, and the benchmark 10-year Treasury yield is hovering near its highest level in 16 years. This, coupled with ongoing concerns about a crisis in China’s real estate market, supported the safe-haven dollar. On the other hand, the dovish interest rate decision made by the European Central Bank (ECB) last Thursday also weighed on the euro. This has proven to be another factor that has failed to help EUR/USD attract buyers or achieve a meaningful recovery from multi-month lows.
The European Central Bank cut its CPI and GDP growth forecasts for 2024 and 2025, signaling that a 14-month policy tightening cycle may have reached its peak. Separately, the euro zone manufacturing purchasing managers’ index (PMI) released on Friday showed that struggling manufacturing continued to weigh on economic growth in September, fueling speculation that GDP may shrink in the second half of the year. This in turn reaffirms market expectations that further interest rate hikes may not be forthcoming and supports the prospect of further depreciation in the EUR/USD currency pair.
Traders are now looking to Germany’s Ifo business sentiment index to provide some momentum ahead of a speech by European Central Bank President Christine Lagarde later in the North American morning session. At the same time, there will be no relevant market economic data released in the United States on Monday, and the dollar will be affected by U.S. bond yields. Beyond this, broader risk sentiment may impact USD price dynamics and help generate short-term EUR/USD trading opportunities.
