Driven by strong data from the United States, the US dollar rose strongly on Wednesday (January 8th), causing the Eurozone stock market to open lower, and traders are preparing to face differences in the path of monetary policy.

The US dollar showed a strong performance on Wednesday due to the strong US economic data, which rekindled the fear of inflation rebound and pushed up the yield of US treasury bond bonds. This has led to a lower opening for European stock markets, while traders are preparing to face the divergence in policy paths between the US and Europe.

Although traders are gradually adapting to the possibility of the Federal Reserve adopting a hawkish interest rate cut cycle, they still expect the European Central Bank to significantly cut interest rates even with Tuesday's data showing accelerated inflation in the eurozone in December.

The market expects the European Central Bank to cut interest rates by 99 basis points this year, while the Federal Reserve is expected to cut interest rates by 37.5 basis points before the end of 2025, with the first rate cut fully priced in July.

The yield of benchmark 10-year US treasury bond bonds hit the highest point in eight months on Tuesday, as data showed that the US economy was still strong and the labor market was stable, but also showed signs that inflation risks might rise again.

The strength of the US dollar has depressed other currencies, making the euro very close to its two-year low hit on the first trading day of 2025. Last year, due to the weak economy in the region and political turmoil in France and Germany, the euro fell by 6%.

According to weekly reports from US market regulators, speculators currently hold short positions in euros worth $9 billion, lower than the four-year high of $10 billion held in early December.

According to a Reuters survey of market strategists, the euro is expected to remain weak in the short term, but is not expected to fall to parity with the US dollar in the coming months, despite the continued threat of US tariffs.

The major European stock indices hope to break free from the low opening situation, with a 6% increase in 2024 and a good start to 2025. However, the rise in bond yields may put pressure on tech stocks, which hit their highest point in over five months on Tuesday.

In terms of corporate news, Meta Platforms announced on Tuesday the cancellation of its US fact checking program and the reduction of restrictions on controversial topic discussions, which is one of its biggest adjustments in managing political content. This change occurred as CEO Mark Zuckerberg expressed his desire to repair his relationship with the political circle as he approaches the Trump presidency. This change will affect Facebook, Instagram, and Threads, which have over 3 billion global users.

Key developments that may affect Wednesday's market:

Retail sales in Germany in November

Eurozone Producer Prices for November

Eurozone December Economic Sentiment Survey