The euro fell, hitting a nine-day low, following a decision by the European Central Bank (ECB) to cut interest rates by 25 basis points. This move changed the deposit rate to 3.0%.
The ECB also indicated that further rate cuts are possible in the future, in line with expectations for a gradual approach to achieving the medium-term inflation target of 2%. The central bank's statement indicated a slower economic recovery than previously expected, while maintaining that monetary policy will remain restrictive.
Despite this, the ECB emphasized its commitment to a data-driven and meeting approach, avoiding pre-commitment to a specific rate path. After the announcement, the euro fell to $1.0470, down from $1.0488 before the rate cut.
The limited fall in the value of the euro can be attributed to market expectations that had predicted a larger rate cut of 50 basis points.
At the same time, the US dollar's appeal is reinforced by its safe haven status and higher yield potential. Chris Turner, head of global markets at ING, noted in a report that the bank still favors the US dollar because of these factors.
The dollar has maintained its strength through December, with US trading partners, including the Eurozone, ready to reduce interest rates quickly. According to ING, the DXY, which had a small decline of 0.1% to 106.581, has the potential to climb to 107 if the ECB proposes additional cuts in interest rate.
In a separate forecast, BNP Paribas Markets (OTC 🙂 360 predicted a continued decline for the euro against the dollar, expecting parity in 2025.
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