• EUR/USD may lose ground amid risk aversion ahead of President-elect Donald Trump’s inauguration on Monday.
• Traders remain cautious amid uncertainty over Trump’s policy promises, including imposing tariffs, extending tax cuts and deporting undocumented immigrants.
• The euro is struggling as markets expect an interest rate cut of 25 basis points at the next four ECB policy meetings.

EUR/USD is making up for some of the losses from the previous session, trading near 1.0280 during Asian hours. However, the pair’s upside may remain confined as the US dollar (USD) may strengthen amid market caution ahead of President-elect Donald Trump’s inauguration later in the day. The American market will be closed on Monday due to Martin Luther King Jr. Day.

Concerns about Trump’s policy promises – such as imposing tariffs, extending tax cuts and deporting undocumented immigrants – helped boost 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 expected to keep interest rates steady at its January meeting, and most economists polled by Reuters forecast a resumption of rate increases in March.

The euro (EUR) faces headwinds amid persistently dovish expectations for the European Central Bank (ECB). Markets are pricing in a 25 basis point (bps) interest rate cut at each of the next four ECB policy meetings, reflecting concerns about the euro zone’s economic outlook and expectations that inflation pressures will remain under control.

Minutes from the ECB’s December meeting published last week suggested that policymakers were more focused on the pace of policy easing this year than on pausing or ending the cycle of interest rate cuts. In particular, officials debated the possibility of a larger-than-usual 50-basis-point cut in interest rates to hedge against downside risks to economic growth that are heightened by political uncertainty both globally and at home.