EUR/USD: Euro May Fall as the ECB Begins Rate Cut Countdown
EUR/USD: Euro May Fall as the ECB Begins Rate Cut Countdown
By:Ilya Spivak
The euro may be set to fall as the European Central Bank begins to lay the groundwork for interest rate cuts
- Euro lifted as the Fed Chair Powell talks down the U.S. dollar.
- All eyes now turn to the ECB monetary policy announcement.
- Stage-setting for interest rate cuts may push the euro lower.
The euro caught a lift as the U.S. dollar traded broadly lower against its major counterparts.
Pressure began to build as the private-sector U.S. jobs growth estimate from ADP undershot expectations, showing payrolls increased by 140,000 in February. Economists penciled in a slightly higher 150,000 rise before the release. A larger nudge came courtesy of Fed Chair Jerome Powell.
Fed Chair Powell wounds long rates, U.S. dollar
The central bank chief sat for the first of two days of testimony in Congress, with markets anxiously awaiting any policy signals that might alter near-term rate cut bets, Powell managed to walk a fine line between reiterating that easing is likely to come this year while warning that more evidence is needed before stimulus can come.
That kept the 2024 policy outlook priced into Fed funds futures pinned in a tight range of 75-80 basis points (bps) in cuts. However, longer-dated Treasury yields slumped as Powell said that “if the economy evolves as we hope, interest rates will need to come down significantly over the coming years.” The greenback felt the sting.
The euro will have to show some of its own initiative from here as the spotlight turns to a monetary policy announcement from the European Central Bank (ECB). The benchmark deposit rate is expected to remain unchanged at 4%, putting the spotlight on updated economic forecasts and the post-meeting press conference with President Christine Lagarde.
Euro at risk if the ECB starts stage-setting for rate cuts
As it stands, three 25 bps cuts are fully priced in to appear by June, September, and December. A total of 85 bps in easing for 2024 is reflected in benchmark euro short-term rate (ESTR) futures, implying a 60% probability of a fourth reduction by year-end. This means that officials may feel it prudent to begin laying the rhetorical groundwork for a policy pivot.
The requisite ingredients seem to be in place. Headline price growth is cooling and German’s two-year breakeven rate – a gauge of inflation expectations in the bond markets – has stabilized below the ECB target of 2%. Meanwhile, purchasing managers index (PMI) data signals economic activity has contracted for nine months straight.
So far, the ECB has resisted market pressure to publicly own the rate cut timeline envisioned by investors. It signaled the end of tightening late last year, but most officials including Lagarde have reiterated a “higher for longer” narrative, implying easing is far off on the horizon. If they begin to change their tune, the euro is set to suffer.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.
Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.
tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.
tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.
tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.
© copyright 2013 - 2025 tastylive, Inc. All Rights Reserved. Applicable portions of the Terms of Use on tastylive.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.