Euro vulnerable on firm Dollar, ECB dovish bets

EURUSD is trading close to a fresh 11-week low near the round-level support of 1.0800 in Tuesday’s European session. The major currency pair is under pressure due to multiple headwinds, such as escalating European Central Bank dovish bets and a firm US Dollar.

Traders have priced in the ECB to cut interest rates again in the December meeting, as growing risks to Eurozone’s economic growth are expected to keep inflationary pressures within striking distance of the central bank’s target of 2%. This would mean the fourth interest rate cut by the ECB this year.

Data released on Monday showed that the German Producer Price Index (PPI) deflated by 1.4% year-on-year in September, faster than 0.8% in August, and pointed to the inability of producers to raise prices of goods and services at factory gates due to weak household spending.

On Monday, Slovak central bank chief and ECB policymaker Peter Kazimir said he is increasingly confident that the disinflation trend is intact. However, he wants to see more evidence before declaring a victory over inflation.

Meanwhile, the commentary from Lithuanian central bank governor and ECB Governing Council member Gediminas Šimkus appeared to be more dovish.

Šimkus said, “If the disinflation processes get entrenched, it’s possible that rates will be lower than the natural level.” The ‘natural level’ of interest rates is between 2% and 3%.

On Tuesday, investors will pay close attention to ECB President Christine Lagarde’s interview with Bloomberg and her participation in a panel discussion during the International Monetary Fund meeting in Washington. Lagarde is expected to provide fresh guidance on interest rates.

EURUSD chart by TradingView

(Source: OANDA)