EURUSD is trading sideways at the start of the week, slightly above the psychological support of 1.0500. The major currency pair consolidates as the US dollar rally stalls after posting a fresh annual high.
Investors will be focusing on European Central Bank President Christine Lagarde’s speech at an event in Paris later on Monday.
Investors would like to know how much Trump’s protectionist policies will impact the Eurozone economy. Also, market participants would look for cues about the likely interest rate cut size in the December meeting.
Fears of a trade war between the Eurozone and the United States have deepened after the commentary of Stephen Moore, a senior economist advisor to Donald Trump, who said on BBC radio over the weekend that the US would be less interested in a free trade deal with Britain if the government put its economic relations with the EU ahead of those with the US, Reuters reported.
The spark of a trade war between the Eurozone and the US arose when Trump mentioned, in his election campaign, that the euro bloc would “pay a big price” for not buying enough American exports.
According to analysts at ING, the ECB is expected to cut interest rates again in December, but a 50 basis points (bps) cut is far from certain.
The DXY Dollar Index, which gauges the greenback’s value against six major currencies, looks for fresh triggers to extend its upside above the key resistance of 107.00.
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-elect 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.”
See video: Donald Trump and foreign policy
Investors are looking for fresh cues to know how Trump’s policies will guide the monetary policy action for the December meeting and 2025.
Meanwhile, Federal Reserve officials refrain from projecting the likely consequences of Trump’s policies on the economy and the interest rate policy.
Speaking at an event at the Federal Bank of Dallas on Thursday, Fed Chair Jerome Powell said, “I think it’s too early to reach judgments here.”
Powell added, “We don’t really know what policies will be put in place.”
On the interest rate outlook, Jerome Powell said that the economy is not sending any signals that might force us to ramp up rate cuts. However, he reiterated that inflation is on a sustainable path towards the bank’s target of 2% that allows them to head towards the neutral rate.
This week, investors will focus on the preliminary S&P Global Purchasing Managers Index (PMI) data for November, which will be published on Friday. The PMI data will show the current status of private business activity and the impact of Trump’s victory on business optimism.
EURUSD chart by TradingView
(Source: OANDA)
