US Dollar Forecast: EUR/USD Weakens as ECB Rate Cut Looms

Dollar Holds Near Highs as Investors Weigh China Stimulus, Euro Weakness; Gold Steadies

The U.S. dollar hovered near recent highs on Monday, supported by cautious investor reactions to China’s stimulus measures and ongoing weakness in the euro. Gold prices steadied as traders sought safe-haven assets amid disappointing news from China and upcoming data from the U.S. Federal Reserve.

Euro Slips Ahead of ECB Decision

The euro continued its decline, falling 0.1% to $1.092, marking its 11th drop in 12 sessions. Investor sentiment has turned bearish on the euro ahead of Thursday’s European Central Bank (ECB) meeting, where a 25 basis-point interest rate cut is widely expected. Economic data across the eurozone has been disappointing, with Germany’s economy still mired in stagflation. France’s outlook also worsened after Fitch downgraded its credit rating to “negative” from “stable,” citing fiscal challenges and political risks.

Dollar Supported by Fed Outlook

The dollar index inched up 0.1% to 103.13, just below its mid-August highs, as investors adjusted their expectations for Federal Reserve rate cuts. Despite mixed U.S. economic data, traders expect two 25 basis-point rate cuts by the Fed in November and December. The dollar has been buoyed by its position relative to other major currencies, with analysts noting that the Fed is likely to move more cautiously than other central banks.

Yen and Pound Under Pressure

The Japanese yen fell to 149.640 against the dollar, its lowest level since early August. The British pound also weakened by 0.2%, near one-month lows at $1.30460, reflecting concerns over the UK’s economic outlook.

Gold Steadies on China Stimulus Concerns

Gold prices remained steady on Monday as underwhelming stimulus announcements from China dampened risk appetite. Spot gold traded flat as investors sought safety amid uncertainty in global markets. China’s Finance Minister announced “counter-cyclical measures” but provided little detail on the scope of the fiscal stimulus, leaving markets unimpressed.

Market Forecast: Dollar to Stay Strong, Gold May Rise

The U.S. dollar is likely to maintain its strength, driven by steady U.S. economic performance and a cautious Federal Reserve. The euro could face additional downward pressure as the ECB likely prioritizes economic growth over inflation, while the yen and pound are also expected to struggle against the dollar.

Gold may see modest gains in the near term as investors react to China’s slow economic recovery and ongoing geopolitical tensions. Traders will keep a close eye on U.S. data and comments from Federal Reserve officials to gauge the direction of both the dollar and gold.