30 Jan 2025

• EUR/USD remains on tenterhooks around 1.0420 as the ECB’s policy meeting looms large.
• The ECB is expected to cut interest rates by 25 bps and deliver a dovish guidance.
• The Fed kept interest rates steady in the range of 4.25%-4.50% on Wednesday.
• EUR/USD experiences a modest increase after three consecutive declines, trading at approximately 1.0420 during the Asian trading session on Thursday. This rise is attributed to a technical correction in the US Dollar (USD). Concurrently, the US Dollar Index (DXY), which evaluates the dollar against six prominent currencies, remains just below 108.00 at the time of this report.
  
  Nevertheless, the potential for further gains in the pair may be constrained, as the USD is likely to regain momentum in light of the Federal Reserve's (Fed) cautious approach to monetary policy. The Fed has reinforced its hawkish perspective by eliminating language that previously indicated confidence in achieving the 2% inflation target.
• During the press conference, Federal Reserve Chair Jerome Powell underscored the central bank's cautious approach to monetary policy, stating that any potential adjustments would hinge on observing "real progress on inflation or some weakness in the labor market." This statement reflects the Fed's commitment to a data-driven strategy, emphasizing the importance of economic indicators in guiding their decisions. As widely anticipated, the Federal Reserve opted to keep its overnight borrowing rate steady at a range of 4.25% to 4.50% during its January meeting on Wednesday. This decision comes on the heels of three consecutive rate cuts that began in September 2024, which collectively resulted in a total reduction of one percentage point. The Fed's current stance indicates a wait-and-see approach, as officials assess the impact of previous rate changes on the economy and inflation dynamics.
  
  In stark contrast, the Eurozone is facing its own set of challenges, as the European Central Bank (ECB) is expected to announce a reduction in interest rates by 25 basis points during its upcoming monetary policy meeting on Thursday. This anticipated move would lower the Deposit Rate to 2.75%, reflecting the ECB's response to ongoing economic pressures within the region. Market analysts are predicting that this rate cut may be the first of several, as the ECB navigates a complex economic landscape characterized by sluggish growth and persistent inflationary concerns. Such a shift in monetary policy is likely to exert downward pressure on the Euro, as lower interest rates typically diminish the currency's appeal to investors seeking higher returns.
  
  In addition to these monetary policy developments, traders are keenly awaiting the release of the fourth-quarter Gross Domestic Product (GDP) figures from both the Eurozone and Germany, which are set to be published on Thursday. These data points will provide critical insights into the economic performance of the region and could influence market sentiment regarding the ECB's future policy decisions. Following the Eurozone GDP release, attention will pivot to the United States, where the Gross Domestic Product Annualized report will be unveiled during the North American trading session. This report is particularly significant, as it will offer a comprehensive overview of the U.S. economy's growth trajectory and could further inform the Federal Reserve's policy considerations in the months ahead. Overall, the interplay between these economic indicators and central bank actions will be closely monitored by market participants as they navigate the evolving financial landscape.