EUR/USD traded in a narrow range around 1.0400 during the European session on Friday (12/27) amid thin trading as market participants stayed away due to the Christmas holiday. The currency pair struggled to find direction while the US Dollar (USD) strengthened on strong expectations that the Federal Reserve (Fed) will follow a gradual policy easing path as inflation has recovered slightly in the past three months.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, remained above the key support of 108.00.

The USD's performance has remained upbeat in recent months partly due to strong growth expectations under US President-elect Donald Trump and growing speculation about a slowdown in the Fed's easing cycle.

The Fed's latest dot chart showed that policymakers see the Federal Funds rate reaching 3.9% by the end of 2025, suggesting that there will be two rate cuts next year instead of four as previously anticipated.

Despite the recent signs of a dotted line, analysts at BCA Research said the Fed will cut interest rates by more than 50 basis points (bps) next year amid expectations that price pressures will be lower than the central bank's 2% target and the unemployment rate will rise above the Fed's forecast of 4.3%. The report added that fewer rate cuts would require "a significant improvement in labor market momentum, a trend shift that we think is unlikely."

On the economic front, US Initial Jobless Claims data for the week ending December 20 came in lower than expected. Individuals claiming unemployment benefits for the first time surprisingly fell to 219,000 from the previous reading of 220,000. Economists had expected the number of jobless claims to rise to 224,000.

Source: FXStreet