EUR/USD dips 1.5% to three-year low as ECB signals steady rate cuts in 2025
Euro price changes
EUR/USD faced a sharp decline to kick off 2025, dipping nearly 1.5% on January 2nd to hit a fresh three-year low just near the 1.02000 psychological support level. This marks the latest move in a downward channel that has been in place since December 2024, setting the stage for a challenging year for the Euro. Key factors driving the current weakness include a dovish outlook from the European Central Bank (ECB) and disappointing economic data from Europe.
EUR/USD price dynamics (November 2024-January 2025). Source: TradingView
ECB policymaker Yannis Stournaras’ suggested that the ECB is set to reduce interest rates at a steady pace throughout 2025, with a potential target near 2% later this year. This dovish outlook contrasts sharply with the Federal Reserve's slower pace of rate cuts, which will likely further widen the interest rate differential between the Euro and the US Dollar. Analysts are now revising their forecasts, with some predicting EUR/USD may even reach parity with the Greenback this year, putting additional downward pressure on the Euro.
Adding to the Euro’s woes, the European Manufacturing PMI data for January missed expectations, reinforcing the bearish sentiment surrounding the currency. As the Euro continues to face challenges from both economic data and central bank policy, the outlook for EUR/USD remains bleak, with further declines likely in the short to medium term.
EUR/USD price analysis: Technical indicators point to further declines in 2025
On the technical side, the critical 1.03310 support level, which had previously held strong in November and December has now turned into resistance. Following the price dip, EUR/USD entered oversold conditions and RSI dipping below 30 on January 2nd. However, following a slight recovery in early January, the RSI has followed suit but remains under 50, suggesting that the rebound may be short-lived. Hence, as the year progresses, EUR/USD is likely to remain under pressure unless there is a dramatic shift in either ECB or US monetary policy.
EUR/USD opened the new year near a two-year low of 1.03310, struggling after falling from a multi-month high. The US Dollar remains strong amid expectations of a slower pace of interest rate cuts by the Federal Reserve.
