The easing of interest rate cut rumors boosts the euro, with 1.1645 becoming a recent focal point for observation

On Monday during Asian trading hours, the EUR/USD currency pair showed a mild upward trend around 1.1645. The main catalyst driving this rally comes from the strong expectation that the Federal Reserve will start cutting interest rates at the Wednesday, December meeting.

Federal Reserve Rate Cut Probability Approaching 90% — Market Outlook

According to the latest trader statistics, the probability of the Federal Reserve implementing a 25 basis point (bps) rate cut at this week’s meeting has approached 87%, implying that the federal funds rate target range will slide to 3.75%-4.00%. However, the market is not entirely bullish; Bob Savage, Chief Macro Strategist at BNY Mellon, pointed out that there are clear disagreements within decision-making circles, with hawkish and dovish members likely to voice their opinions.

If the Federal Reserve adopts a “hawkish rate cut” stance—cutting rates while emphasizing that future cuts may stop or slow down—the dollar could instead gain support, thereby suppressing the euro’s rally. Traders are expected to focus on the Fed Chair’s wording during the press conference and the policy path revealed by the economic projections dot plot.

Eurozone Attitude Turning — Euro Gets a Breather

Across the Atlantic, the European Central Bank’s policy stance is gradually becoming clearer. In November, eurozone inflation data slightly exceeded expectations, reducing the urgency for the ECB to continue cutting rates. The market widely expects the ECB to hold steady at its December 18 meeting, maintaining rates at current levels.

Expectations that the ECB’s rate-cutting cycle has ended continue to rise, providing relative support for the euro against currencies including the Australian dollar and the New Taiwan dollar. Goldman Sachs analysts believe that the deposit rate of the ECB is unlikely to be lowered before 2026 unless inflation worsens unexpectedly. Deutsche Bank economists, considering inflation risks, even see a 25 bps rate hike by the ECB at the end of 2026 as possible.

Upcoming Key Events

On Monday evening, the market will see the release of two major data points: German industrial production and Sentix investor confidence. These economic indicators will further assess the momentum of the eurozone economy and could influence the subsequent trend of EUR/USD.