The EUR/USD pair is seeing a resurgence today, bouncing back after a volatile Friday, with the release of the latest US payrolls data. As we head into a critical week with the US election dominating market sentiment, the euro’s performance is significantly influenced by shifts in the US Dollar (USD) rather than any immediate news from the Eurozone.
Pre-Election Volatility Drives Market Moves
This week’s pre-election uncertainty is driving much of the volatility in the EUR/USD pair. According to ING’s FX analyst Francesco Pesole, while the focus remains on the upcoming US elections, the impact on the euro is not just limited to the dollar’s reaction. “The markets have adjusted their expectations for European Central Bank (ECB) actions, scaling back on dovish bets following recent eurozone growth and inflation data,” Pesole explains. However, traders are still factoring in the possibility of the ECB implementing a significant rate cut in December, especially if Donald Trump wins.
ECB Easing and US Election Fears Impacting the Euro
The speculation about a potential 50-basis-point (bp) rate cut in December hinges on the expectation that a Trump presidency may lead to more protectionist policies. This could push the ECB to act more aggressively in order to support economic growth, particularly if global trade dynamics become more strained. Currently, markets are pricing in a 29bp easing for December, with an additional 30bp expected in January.
Also read : Germany’s Industrial Production Falls 2.5% MoM in September, Worse Than Expected – EUR/USD Holds Steady Above 1.0750
EUR/USD Trading Above 1.0900 Amid USD Weakness
The euro briefly traded above the 1.0900 mark this morning, buoyed by broad-based weakness in the US Dollar. The weaker dollar comes as a result of market jitters ahead of the election and uncertainty about future US monetary policy. As the political landscape in the US evolves, the direction of the EUR/USD pair will likely remain sensitive to the shifting balance between US dollar strength and ECB actions.
