EUR/USD retreats towards 1.0870 as ECB’s Villeroy sees rate cut expectations as appropriate

• EUR/USD falls near 1.0870 amid multiple headwinds.
• ECB’s Villeroy sees two more rate cuts appropriate this year.
• US Dollar Rebounds Amid Speculation Donald Trump Will Win US Presidential Election

The EUR/USD pair corrects further near 1.0870 in the European session on Friday. The major currency pair weakened due to multiple headwinds: strong speculation that the European Central Bank (ECB) will cut interest rates two more times this year and a strong recovery of the US Dollar (USD).

On Thursday, the ECB kept key rates unchanged at their current levels. ECB President Christine Lagarde stopped short of committing to a predefined path of rate cuts.

In late Asian trading on Friday, ECB policymaker Francois Villeroy de Galhau said in an interview on French radio BFM Business that market expectations for the ECB to make two more rate cuts this year, resuming the policy tightening campaign since the September meeting and continuing in December, are appropriate.

Meanwhile, the ECB’s Survey of Professional Forecasters (SPF) showed on Friday that price pressures will remain close to 2.4% and return to 2.0% in 2025, as projected by ECB President Lagarde at Thursday’s press conference. The agency has lowered the growth target for 2025 to 0.7% from previous estimates of 0.5%.

Across the Atlantic, the US dollar is recovering strongly. The Dollar Index (DXY), which tracks the value of the greenback against six major currencies, is up to 104.30 from a near four-month low of 103.70.

The US Dollar is recovering amid growing speculation that Donald Trump will emerge victorious in the United States (US) presidential election later this year.