EURUSD falls as the Fed reduces three rate cut estimates to one.

In Thursday’s late European session, the EURUSD corrected to near round-level 1.0800. The major currency pair is under pressure following a positive Wednesday. When it rebounded to 1.0850 from an almost six-week low of 1.0720. After the US Consumer Price Index (CPI) data for May was lower than expected. Impacting significantly on the US Dollar (USD).

Fed Chairman Powell said May’s flat CPI reading was positive but insufficient to boost confidence in rate decreases.

Later on Wednesday, however, the EURUSD retreated following the Federal Reserve’s (Fed) monetary policy meeting. The Fed kept interest rates constant at 5.25%-5.50% for the seventh time in a row, as expected. And officials predicted fewer rate decreases this year than three months ago.

Specifically, the Fed’s dot plot revealed that officials expect only one rate cut this year, compared to three anticipated in March. Fed officials limited the number of rate reduction in January-March due to a solid job market and persistently high inflation. They also raised their year-end projection for the core Personal Consumption Expenditures Price Index (PCE), the Fed’s preferred inflation metric, to 2.8% from 2.6% in March.

Fed Chair Jerome Powell remarked in a press conference that while the May CPI figure is promising, Before pursuing policy normalization, policymakers want to see more reliable data. Fed Powell gave no indications about when the Fed might decrease interest rates and instead pushed for keeping the current interest rate framework in place for a longer term. Powell stressed that “unexpected easing” in the labor market may require policymakers to address rate decreases sooner, but that the employment outlook appears to be strong.

Prior to the Fed pronouncements, the CPI report indicated that US inflation slowed in May. On the month, headline inflation was steady, while the core reading increased by 0.2%, less than the expected 0.3%. On the year, the headline and core CPI fell to 3.3% and 3.4%, respectively.

Daily Market movers: EURUSD falls on EU election uncertainty.

Investors seek fresh cues about the French election results. Polls show that Marine Le Pen’s far-right National Rally has made a strong case for parliamentary elections, but it falls short of an absolute majority. Meanwhile, French Finance Minister Bruno Le Maire stated that if RN obtains power and implements its plans, “a debt crisis is possible in France,” according to Reuters.
On the monetary policy front, European Central Bank (ECB) policymakers have declined to commit to a precise rate-cutting path. Conversely, ECB officials have warned that inflation will remain persistent due to stubborn price growth in the services sector, which is mostly driven by wage growth.

ECB policymakers predict a difficult road to the 2% inflation target.

In an interview this week, ECB President Christine Lagarde stated that last week’s rate cut did not commit to a linear decline path. “There “There may be periods when we hold rates,” she said, according to Reuters.
The major currency pair will be guided on Thursday by the US Producer Price Index (PPI) data for May, which will be released at 12:30 GMT. Annual headline PPI is expected to have advanced to 2.5% from 2.2% in April, with core readings rising steadily by 2.4%. Stubborn PPI numbers would lower market expectations for Fed rate reduction at the September meeting, whilst soft figures would raise them.