Daily digest market movers EURUSD struggles to hold recovery as US Dollar’s broader outlook remains firm

EUR/USD managed to get some demand near 1.0500 last week as the US Dollar (USD) faced a slight correction after posting a fresh yearly high, with the US Dollar Index (DXY) ticking down from 107.00. The outlook of the major currency pair remains downbeat as market participants see the Greenback having more room for growth on expectations that Trump’s policies will prompt inflation and economic growth.

According to analysts at Capital Economics, "While a period of consolidation looks likely in the near term, we have revised up our forecasts for the US Dollar and now project a further 5% appreciation by the end of 2025." Economists added, "That is based primarily on a view that President-elected Donald Trump will push ahead with the core tariff policies he proposed on the campaign trail and that the US economy will continue to outperform its major peers."

The scenario of high inflation and strong growth will result in fewer interest rate cuts by the Federal Reserve (Fed), which will result in a sharp policy divergence with the ECB. Meanwhile, traders have also pared some bets supporting interest rate cuts by the Fed in December. According to the CME FedWatch tool, there is a 62% chance that the central bank will cut its key borrowing rates by 25 bps to the 4.25%-4.50% range, down from 77% noted a month ago.