Euro Under Pressure as ECB Remains Dovish

30 Jan 2025 , 10:30 AM

Because the Federal Reserve had paused its easing cycle overnight, dollar bulls were prepared to jump on the euro Thursday if the European Central Bank sounded dovish on rates later in the day.

Given how poor the EU economy is, markets are more than fully priced on the ECB to lower rates by 25 basis points to 2.75% later on Thursday, with even a slim likelihood of a 50 basis point cut.

With almost 90 basis points of easing predicted for 2025, this is one of the reasons why markets are pricing in more cuts in March, April, and June.

The euro might face more pressure if ECB President Christine Lagarde were to reiterate such a dovish outlook. Overnight, the single currency gained support at $1.0380 and was trading flat at $1.0425.

The dollar was somewhat weaker against the yen and 107.880 against a basket of currencies.

When the Fed held rates stable overnight as anticipated but made a hawkish reference to making “progress” on inflation, it momentarily surged higher.

However, at his press conference, Chair Jerome Powell stated that rates were “meaningfully” above neutral and that progress was still being made, suggesting that there was still more room for cutting.

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