EUR/USD strengthens above 1.0500, all eyes are on Fed rate decision

• EUR/USD gains momentum to around 1.0505 in Wednesday’s Asian session. 
• The US Fed is expected to make a third consecutive rate cut at its December meeting on Wednesday. 
• The rising bet for the ECB's further interest rate cuts could undermine the Euro. 

The EUR/USD pair holds positive ground to near 1.0505 during the early European session on Wednesday. However, the cautious sentiment ahead of the Federal Reserve (Fed) interest rate decision meeting could weigh on riskier assets like the Euro (EUR). 

The Fed is widely expected to lower borrowing costs by 25 basis points (bps) at its December meeting on Wednesday, bringing its overnight borrowing rate by a quarter percentage point to a range of between 4.25% and 4.50% from its current range of between 4.50% and 4.75%. The attention will shift to the Fed’s updated economic projections and the dot plot, which might offer some hints about expectations for the rate trajectory through 2025 and 2026. Any signs of a more cautious stance on rate reduction going forward could boost the Greenback against the Euro (EUR). 

Across the pond, the European Central Bank (ECB) President Christine Lagarde noted on Monday that further interest rate cuts were likely. “The direction of travel is clear, and we expect to lower interest rates further,” Lagarde said. Additionally, the ECB Governing Council member Olli Rehn stated that interest rates will continue to head lower as inflation starts to stabilize around the 2% target. Isabel Schnabel, the ECB's most influential policy hawk, emphasized market bets on further gradual reductions in borrowing costs in the Eurozone as the economy stutters and fears about high inflation fade. 

However, the pace and size of the rate cuts will be determined in each meeting on the basis of incoming data and comprehensive analysis. This, in turn, might cap the upside for the major pair in the near term.