The euro is declining against the US dollar as the ECB and Fed’s policies diverge
ECB President Lagarde’s recent comments on falling inflation hint at potential rate cuts, echoed by other ECB officials.
Focus now turns to key US data releases before the Fed meeting, which could fuel EUR/USD‘s downtrend.
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The euro has continued its downward spiral against the US dollar as the rhetoric between the European Central Bank (ECB) and the Federal Reserve (Fed) continues to diverge.
This growing disparity is fueling a significant shift in market expectations for interest rate adjustments. While the recent ECB meeting left interest rates unchanged, a clear dovish shift emerged in the officials’ comments.
ECB President Lagarde’s statement, indicating inflation is falling and disinflation is underway, signaled a potential openness to future rate cuts. Adding fuel to the fire, other ECB officials echoed dovish sentiments early in the week.
Francois Villeroy de Galhau suggested potential rate cuts as early as June, while Mario Centeno hinted at the possibility of more aggressive cuts, potentially totaling 100 basis points (four moves), surpassing prior expectations of 75 basis points (three moves).
