The euro fell to a nine-day low following the European Central Bank’s (ECB) decision to cut interest rates by 25 basis points. This move adjusted the deposit rate to 3.0%.

The ECB also signaled the possibility of further interest rate cuts in the future, which is in line with expectations of a gradual approach to achieving the medium-term inflation target of 2%. The central bank’s statement pointed to a slower economic recovery than previously expected, while maintaining that monetary policy would remain restrictive.

Still, the ECB stressed its commitment to a data-driven, meetings-based approach, refraining from pre-setting a specific interest rate path. After the announcement, the euro fell to $1.0470, down from $1.0488 before the interest rate cut.

The constrained decline in the value of the euro can be attributed to market expectations that justified a potential larger interest rate cut of 50 basis points.

At the same time, the attractiveness of the US dollar has been strengthened by its safe-haven status and higher yield prospects. Chris Turner, global head of markets at ING, noted in the report that the bank continues to favor the US dollar due to these characteristics.

The dollar remained powerful throughout December, and U.S. trading partners, including the euro zone, are poised to cut interest rates quickly. According to ING, the DXY index, which recorded a slight decline of 0.1% to 106.581, has the potential to rise towards 107 if the ECB signals further interest rate cuts.

In a separate forecast, BNP Paribas (OTC:) Markets 360 projected the euro to fall further against the dollar, predicting parity in 2025.

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