EUR/USD edges higher to near 1.0300, upside seems limited ahead of Trump’s inauguration

• 
  

• EUR/USD could lose ground amid risk aversion ahead of President-elect Donald Trump’s inauguration on Monday.

• 
  

• Traders remain cautious amid uncertainty surrounding Trump’s policy pledges, including imposing tariffs, extending tax cuts, and deporting illegal immigrants.

• 
  

• The Euro struggles as markets anticipate a 25 basis point rate cut at the next four ECB policy meetings.

• 
  

EUR/USD recovers some of its losses from the previous session, trading near 1.0280 during Asian hours. However, the pair's upside may remain capped as the US Dollar (USD) could strengthen due to market caution ahead of President-elect Donald Trump’s inauguration later on the day. The US market will remain closed on Monday for the Martin Luther King Jr. Day holiday.

Concerns over Trump’s policy pledges—such as imposing tariffs, extending tax cuts, and deporting illegal immigrants—have fueled an increase in US Treasury yields and supported the US Dollar ahead of his swearing-in. Analysts suggest that the US Federal Reserve's (Fed) future interest rate trajectory will hinge on the extent to which the Trump administration implements these policies.

Investors will be closely watching Trump’s planned executive orders, expected to be issued shortly after he takes office. Meanwhile, the Fed is widely anticipated to keep interest rates steady at its January meeting, with a majority of economists polled by Reuters forecasting a resumption of rate hikes in March.

The Euro (EUR) faces headwinds as dovish expectations for the European Central Bank (ECB) persist. Markets are pricing in a 25 basis point (bps) interest rate cut at each of the next four ECB policy meetings, reflecting concerns over the Eurozone's economic outlook and the expectation that inflationary pressures will remain under control.

The ECB's December meeting minutes, released last week, suggested that policymakers focused more on the pace of policy easing this year rather than pausing or ending the rate cut cycle. Notably, officials debated the possibility of a larger-than-usual 50 bps rate cut to safeguard against downside risks to growth, which are being compounded by both global and domestic political uncertainties.