There has been a notable change in market perceptions regarding the pace and quantity of potential Fed and ECB rate cuts in recent weeks, Rabobank’s FX analyst Jane Foley notes.

Latest developments underpin downside risks for EUR/USD

“Speculation that the Fed could follow September’s 50 bps rate cut with another similarly sized move has been blown away by a round of data pointing to a resilient US economy. Instead, talk has emerged that the FOMC might be minded to cut rates only once more before the end of the year.”

“By contrast, the market is interpreting remarks from some ECB officials as signalling that they are now relatively comfortable with the Eurozone’s inflation outlook and are instead turning their attention towards the need to support growth in the region. The result has been heightened speculation about a potential quicker pace of ECB easing or even the deployment of a larger 50 bps interest rate cut.”

“The resultant downward pressure on EUR/USD has been compounded by a renewed interest in the dollar supportive ‘Trump trade’. We recently revised down our forecasts for EUR/USD and latest developments underpin downside risks for the currency pair.”