The EUR/USD currency pair held close to an 11-week high of 1.1769 on Tuesday ahead of the outcome of the European Central Bank’s policy meeting, while investors braced for the US Non-Farm Payrolls data for more insight into macroeconomic conditions and the Fed’s future interest rate path.
The Federal Reserve delivered a largely anticipated rate cut last week, while noting it will wait for clearer signs on a cooling job market and inflation, which “remains somewhat elevated”.
But, the vote was divided, as three FOMC members continued to vote against the rate reduction.
FOMC policy makers signaled just one 25 bps rate cut for next year, or the same projection as in September.
Market pricing, as reflected by the CME FedWatch tool, now indicates a 73% chance that interest rates will remain unchanged at the January 2026 meeting, compared to 70% prior to the Fed’s December decision.
Meanwhile, the European Central Bank is largely expected to keep its main refinancing operations rate intact at 2.15% at its December 18th policy meeting.
And, the ECB deposit facility rate is expected to be kept at 2.00%.
ECB policy makers continued to argue that the current stance remained appropriate and that short-term inflation deviations did not require a response.
ECB officials have stressed that the next move could go either direction, reinforcing their neutral posture. Recent economic data supported this view, while markets have begun assigning a modest probability to a rate hike next year.
With the economic and inflation outlook broadly in line with the ECB’s September forecasts, several policy makers argued that the monetary easing cycle might have already reached its endpoint, as long as current favorable conditions are present.
The EUR/USD currency pair was last little changed on the day to trade at 1.1760.
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