The EUR/USD exchange rate remains under pressure, starting December on a bearish trajectory. Following its steepest monthly decline since September 2022, the euro is showing signs of recovery but remains susceptible to further losses.

The recent drop in EUR/USD is largely attributed to the strengthening U.S. dollar, bolstered by the Federal Reserve's cautious stance. Fed Chair Jerome Powell recently highlighted the resilience of the U.S. economy, with markets pricing in a nearly 65% chance of a 25-basis-point rate cut in December.

This cautious Fed outlook contrasts with the more dovish expectations surrounding the European Central Bank (ECB). Inflation in the eurozone continues to exceed the ECB's 2% target, with the Harmonized Index of Consumer Prices (HICP) rising by 2.3% year-over-year in November. Despite this, market participants have already priced in a 25-basis-point rate cut by the ECB in December, maintaining downward pressure on the euro.