Expectations of Fed rate cuts are rising, and EUR/USD is gradually climbing to the 1.1645 level

During Monday’s Asian trading session, the euro against the US dollar showed a moderate upward trend around 1.1645. Market traders are generally focused on the Federal Reserve’s policy decision at the December meeting on Wednesday, while signals from the European Central Bank (ECB) have provided additional support for the euro.

High Probability of Fed Rate Cut, US Dollar Faces Correction Pressure

According to market pricing, investors estimate an approximately 87% chance that the Federal Reserve will implement a 25 basis point rate cut this week. If this rate cut materializes, the federal funds rate will be further lowered to the 3.75%-4.00% range. However, there is a risk that policymakers may adopt a “hawkish” stance on rate cuts, which would support the US dollar and hinder major currency pairs like EUR/USD.

BNY senior market strategist Bob Savage提醒 clients that hawkish and dovish voices among officials are expected to clash, and investors should closely monitor the press conference and the specific content of the economic “dot plot” forecast to seek further trading momentum.

ECB Policy Stance Has Been Clarified, Supporting Short-Term Euro Performance

Across the Atlantic, the European Central Bank’s (ECB) rate-cut cycle has gradually come to an end. Although November eurozone inflation data slightly exceeded expectations, the market anticipates that the ECB will keep policy rates unchanged at the December 18 meeting. Economists increasingly expect the central bank to have finished cutting rates, providing support for the short-term trend of the euro against the dollar.

Goldman Sachs analysts指出，存款利率可能在2026年前维持在2.0%的水平，除非通胀环境出现显著逆转。同时，德意志银行的经济学家更看好加息可能，预测到2026年底存在25个基点的升息空间，主要原因是全球通胀压力仍未完全缓解。

Short-Term Trading Focus and Risk Warnings

On Monday evening, Germany’s industrial production and the eurozone Sentix investor confidence index will be released, which could impact expectations for future ECB policy. Traders should closely monitor policy risks, especially the market reaction if the Fed adopts a hawkish rate cut stance. Additionally, emerging market currencies like AUD/ TWD will also be affected by the global central bank policy shifts.

Overall, the recent upward movement of EUR/USD reflects the market’s digestion of the Fed’s easing policy and confirmation of the European Central Bank’s policy cycle ending. The subsequent performance will depend on whether the Fed’s meeting results meet market expectations.