08 Jan 2025

• EUR/USD edges higher to around 1.0350 in Wednesday’s early European session. 
• Solid US economic data supports a Fed rate pause, which could lift the USD. 
• Markets expect aggressive rate cuts by the ECB in 2025 despite the rise in inflation.
• The EUR/USD pair is experiencing an upward movement, approaching 1.0350 during the early hours of the European session on Wednesday. Nevertheless, the potential for further gains in this major currency pair may be constrained by the likelihood of slower interest rate reductions by the Federal Reserve (Fed) in 2025. The Minutes from the Federal Open Market Committee (FOMC) will be closely scrutinized later today.
  
  Positive economic indicators from the United States could provide the central bank with sufficient justification to maintain elevated interest rates for an extended period, thereby bolstering the US dollar. The US Services Purchasing Managers Index (PMI) increased to 54.1 in December, up from 52.1 previously, as reported by the Institute for Supply Management (ISM) on Tuesday. This figure surpassed the market expectation of 53.3. Additionally, US JOLTS Job Openings rose to 8.09 million in November, compared to 7.83 million in October, while the market had anticipated 7.7 million openings for November.
  
  Furthermore, assertive remarks from Fed officials may enhance the dollar's strength. Federal Reserve Bank of Atlanta President Raphael Bostic stated on Tuesday that inflation is projected to gradually decrease this year towards the Fed's 2% target. However, he cautioned that policymakers should proceed carefully with their decisions due to the inconsistent progress in reducing inflation, advocating for a cautious approach to maintaining higher interest rates to achieve price stability. Earlier on Monday, Fed Governor Lisa Cook emphasized that officials could adopt a more measured approach to interest rate cuts, citing a robust labor market and persistent inflation.
  
  In Europe, market participants continue to expect significant rate cuts from the European Central Bank (ECB) in 2025, despite rising inflation. This expectation may place additional downward pressure on the Euro (EUR) against the USD. The ECB is anticipated to reduce rates by 25 basis points (bps) at its upcoming meeting on January 30, with traders forecasting cumulative cuts exceeding 100 bps for the entire year.
  
  Later on Wednesday, market participants will be attentive to the release of German Retail Sales data, as well as the Eurozone Consumer Confidence and Producer Price Index.