EUR/USD holds ground above 1.0500 as looming Fed decision

EUR/USD starts the week by extending its gains, trading around 1.0520 during the Asian session on Monday. This upside could be attributed to the decline in the US Dollar (USD) amid tepid US Treasury yields ahead of the Federal Reserve’s (Fed) interest rate decision set for Wednesday.

The Fed is widely expected to announce a 25 basis point rate cut in its final monetary policy meeting of 2024. Market analysts predict that the US central bank will cut rates while preparing the market for a pause, given the robust US economy and inflation stalling above 2%. According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting.

Furthermore, Fed Chair Jerome Powell’s press conference and Dot Plots will be closely monitored. Earlier this month, Powell maintained a cautious tone, stating, “We can afford to be a little more cautious as we try to find neutral.” He indicated that he is not in a hurry to reduce rates.

The Euro gained support after President Emmanuel Macron appointed centrist ally François Bayrou as France's Prime Minister, raising hopes for political stability. Macron had pledged to quickly select a new candidate for the role after Michel Barnier was forced to resign following a confidence vote in Parliament.

On Friday, European Central Bank (ECB) Governing Council member Robert Holzmann said that cutting interest rates solely to stimulate the economy would be a mistake. According to Holzmann, the ECB’s primary responsibility is to ensure price stability, not to fuel economic growth. "Lowering rates now to boost the economy would contradict our current stance," he said, as reported by Bloomberg.