EUR/USD Bulls Charge Ahead as Fed Easing Bets Intensify

investing.com:

The EUR/USD pair is likely to be among the more active currency pairs this week, which I am expecting to potentially rise to the 1.10 handle amid improved risk sentiment and recent falls in US yields and the US dollar. Although the economic situation in the eurozone remains far from convincing, the market may have gotten ahead of itself with regard to ECB rate cuts being priced in as early as April.

We are likely to see a pushback against those optimistic expectations from more ECB officials after Governing Council member Pierre Wunsch said the central bank may have to raise rates again if investor bets on monetary loosening undermine the institution’s policy stance.

Meanwhile, the next interest rate move in the US is likely to be a cut, possibly as early as the second quarter as signs emerge of inflation being on a consistent path of easing towards the Fed’s 2% average target in the long term. This week, the US economic calendar is relatively quiet, but we will still have a few important macro highlights that could move the EUR/USD and other FX pairs.

The US dollar has started the new week lower, extending its losses from the week before when the Dollar Index had slumped nearly 1.9%. The bulk of last week’s losses came in on Tuesday when US CPI came in weaker than expected. Even before the CPI data, speculation had been rife that the Federal Reserve had reached the end of its rate-hiking cycle.

But following the cooler inflation data last week, the focus has shifted to when the Fed will start cutting rates again. Previously, the market was speculating this to start after the middle of next year at the earliest. But now, the market is attaching about a 30% chance of a first Fed rate cut taking place in March. For what it