The EUR/USD pair has been gaining ground, reaching 1.0710 amid the softer US Dollar on Monday. The weaker US Dollar below the 106.00 mark has provided some support to the major pair. This movement is significant as it indicates a shift in market sentiment towards the Euro and away from the Dollar.
The European Central Bank (ECB) might consider cutting interest rates before the Federal Reserve, given the cooler inflation in the Eurozone. ECB President Christine Lagarde hinted at the possibility of lowering the deposit rate from a record-high 4% in June. This indicates a proactive approach by the ECB to stimulate economic growth and address inflation concerns in the Eurozone.
The recent US inflation data revealed that the Personal Consumption Expenditures (PCE) Price Index rose by 2.7% YoY in March, surpassing the previous reading and exceeding expectations. The Core PCE figure, which is the Fed’s preferred inflation measure, held steady at 2.8% YoY in March. This data has implications for the Federal Reserve’s monetary policy decisions.
Market participants have adjusted their expectations regarding the timing of potential interest rate cuts by the Federal Reserve. The chances of a rate cut by the July meeting have decreased from 50% to 25%, while there is a higher probability of a rate cut at the September meeting. This change in expectations could influence the movement of the EUR/USD pair in the near term.
The first reading of the German Consumer Price Index (CPI) for April is scheduled for Monday. Additionally, all eyes will be on the Federal Reserve monetary policy meeting on Wednesday, although no change in rates is expected. These events will provide further insights into the economic conditions in both the US and Eurozone and could impact the direction of the EUR/USD pair.
The recent inflation data releases and central bank statements have played a crucial role in shaping the movement of the EUR/USD pair. The divergence in inflation trends between the US and Eurozone, along with changing market expectations regarding interest rate cuts, are key factors to monitor for traders and investors in the foreign exchange market.