EUR/USD rises to near 1.0450 due to rising odds of Fed keeping rates unchanged in January

• EUR/USD appreciated as the US inflation report has reinforced the odds of the Fed adopting gradual policy easing in 2025.
• CME FedWatch tool suggests a more than 90% probability of the Fed maintaining its current interest rates in January.
• ECB’s Boris Vujcic announced that the central bank intends to reduce borrowing costs further in 2025.

EUR/USD remains steady following the gains from the previous session, trading around 1.0430 during the Asian hours on Monday. This upside of the pair could be attributed to the decline in the US Dollar (USD) following the Personal Consumption Expenditures Price Index (PCE) data from the United States (US).

The November inflation report showed that core PCE inflation year-over-year, the Fed’s preferred inflation measure, rose steadily by 2.8%, slower than estimates of 2.9%. The monthly core inflation grew moderately by 0.1%, against estimates of 0.2% and the prior release of 0.3%.

Lower-than-expected US inflation data has reinforced the market sentiment that the Federal Reserve (Fed) will adopt a slower pace of additional cuts in 2025. According to the CME FedWatch tool, markets now anticipate a more than 90% probability that the Federal Reserve (Fed) will keep interest rates unchanged in January, maintaining the current range of 4.25%–4.50%.

On Sunday, US President-elect Donald Trump announced key appointments to his administration, according to Business Insider. Scott Bessent has been chosen to lead the Treasury, Howard Lutnick will serve as Commerce Secretary, and Kevin Hassett will head the National Economic Council. Additionally, Andrew Ferguson has been selected to chair the Federal Trade Commission, while Jacob Helberg, a senior advisor to Palantir CEO Alex Karp, has been nominated as Secretary of State for Economic Growth, Energy, and Environment.

In the Eurozone, European Central Bank (ECB) Governing Council member Boris Vujcic stated on Saturday that the central bank plans to continue lowering borrowing costs in 2025, according to Bloomberg. “The direction is clear—it’s a continuation of the path from 2024, with further reductions in interest rates,” he said.

Additionally, the approval of taxation reforms by German lawmakers strengthens the Euro, as Germany is the largest economy in the Eurozone. These reforms will increase disposable income for households, boosting consumer demand and stimulating economic growth.