EUR/USD posts modest gains above 1.0850, all eyes on the US presidential election results

• EUR/USD remains firmer around 1.0880 in Tuesday’s early Asian session. 
• The outcome of the US presidential election and the Fed rate decision will be the highlights for this week.  
• A slew of Eurozone economic data dampens the hope of large rate cuts by  the ECB in December.

The EUR/USD pair trades with mild gains near 1.0880 during the early Asian session on Tuesday. The US Dollar (USD) edges lower as traders brace for the outcome of the US presidential election and a likely interest rate cut from the Federal Reserve (Fed), which supports some support for the major pair. 

Democratic candidate Kamala Harris and Republican Donald Trump remain almost tied in opinion polls, and the results will be announced for days after voting ends. "The polls suggesting that Harris may have her nose in front in a couple of swing states is causing a bit of profit-taking in the Trump trade,” noted Kenneth Broux, head of corporate research FX and rates at Societe Generale.

Furthermore, the rising expectation that the Fed will cut the interest rate at its November meeting drags the Greenback lower. The US central bank is widely anticipated to cut rates by the usual 25 basis points (bps) on Thursday, rather than the outsized half-point easing of its last decision. According to CME's FedWatch tool, financial markets are now pricing in nearly a 98% odds of a quarter-point reduction and a near 80% chance of a similar-sized move in December.

Across the pond, the Euro gathers strength as the recent Eurozone economic data has diminished expectations for the European Central Bank (ECB) to lower larger interest rates in December. Money markets are currently pricing in a 34 bps rate cut, down from a 42 bps reduction the previous day, indicating that the odds of a deeper 0.5% reduction are diminishing. During the October meeting, the central bank reiterated its commitment to a "data-dependent and meeting-by-meeting" approach to future policy decisions. However, the Eurozone November inflation report might offer some hints about the ECB interest rate outlook.