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

Concerns over Trump's policy promises—such as imposing tariffs, extending tax cuts, and deporting illegal immigrants—have fueled a rise in US Treasury yields and supported the US Dollar ahead of his inauguration. Analysts suggest that the future trajectory of US Federal Reserve (Fed) interest rates will depend on the extent to which the Trump administration implements these policies.

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

The euro (EUR) faces headwinds as dovish expectations from the European Central Bank (ECB) persist. Markets are pricing in a 25 basis point (bps) interest rate cut at each of the ECB's next four policy meetings, reflecting concerns about the eurozone's economic outlook and expectations that inflation pressures will remain subdued.

The ECB's December meeting minutes, released last week, showed that policymakers were more focused on the pace of policy easing this year than on halting or ending the rate-cutting cycle. Notably, officials mooted the possibility of a larger-than-usual 50 bps rate cut to protect against downside risks to growth, which were exacerbated by global and domestic political uncertainty.(AL)

Source: FXstreet