EURUSD Consolidates Around 1.05, As Buyers Remain Afraid of 1.06 Ahead of the ECB Rate Cut

EUR/USD Under Pressure Amid Eurozone Challenges

The EUR/USD pair has seen a significant decline over the past two months, losing nearly 10 cents amid weak eurozone data and dovish expectations surrounding the European Central Bank (ECB). The pair found support at 1.0331, stabilizing over the past two weeks within a narrow range near 1.05. Persistent economic struggles in the eurozone and heightened political uncertainty in France, following the removal of Prime Minister Michel Barnier, have further weighed on the euro. Buyers have struggled to sustain price action above 1.06, suggesting a temporary pause in the bearish trend as markets await critical developments, including the US CPI inflation report and the ECB meeting.

The ECB is widely expected to announce a 25-basis-point rate cut during its upcoming meeting on Thursday, reinforcing a dovish monetary stance. This has added pressure on the euro, which remains vulnerable amid ongoing economic difficulties.

Dollar Dynamics and Key Inflation Data

In the US, the dollar’s recent performance reflects growing expectations of a Federal Reserve rate cut at its December 18 meeting. Market sentiment has shifted significantly, with the probability of a 25-basis-point reduction to 4.25%–4.50% rising from 60% last week to 87%. However, market participants remain focused on tomorrow’s US Consumer Price Index (CPI) data, which is expected to show slightly higher monthly and yearly headline inflation figures. This report is likely to introduce volatility to the EUR/USD pair, as it could influence the Federal Reserve’s policy trajectory.

Awaiting the ECB Decision On Thursday

The EUR/USD pair appears to be in a holding pattern as traders balance eurozone weakness, ECB expectations, and the Fed’s potential rate cut. The US CPI report and the ECB’s decisions later this week will play pivotal roles in determining the pair’s next moves. For now, the euro remains under pressure, with the dollar’s strength and upcoming data likely to dictate short-term market direction.