EURUSD loses Intraday gains and falls to 1.0700 on a solid US Q1 Labor Cost Index.
In Tuesday’s early New York session, the EURUSD Reversed Intraday gains and fell under the critical support level of 1.0700. The Euro fails to maintain gains versus the US Dollar after the Bureau of Labor Statistics (BLS) announced. A significant increase in the Q1 Employment Cost Index.
The Eurozone’s high inflation and robust Q1 GDP growth are insufficient to deliver a durable lift to the Euro.
The economic data, a leading indication of wage growth, increased at a robust rate 1.2%, compared to 1.0% expectations and a previous figure of 0.9%. This has increased expectations that US inflation will continue persistently high. As strong wage growth leads to healthy household spending, which eventually fuels pricing pressures.
On the Eurozone front, preliminary inflation data for April and Gross Domestic Product (GDP) figures for the first quarter exceeded expectations. Annually, the Harmonized Index of Consumer costs (HICP) grew briskly and matched expectations. While the core HCPI, which includes food and energy costs, dropped at a slower rate.
The Eurozone economy grew at a faster rate of 0.3% in the first quarter. Despite the European Central Bank (ECB) keeping its Main Refinancing Operations Rate at historic highs of 4.5%.
The Euro’s Failure to Hold Gains following the announcement of important economic indices imply that investors’ confidence in the ECB’s transition to interest rate decreases in June remains intact. Speculation that the ECB will lower interest rates beginning in June persists. as the majority of ECB policymakers have also supported a rate cutting step. Some believe the rate-cutting push will continue beyond this year’s meetings.
Daily Market movers: EURUSD struggles to maintain gains following positive US Q1 Employment Cost Index.
Following Eurozone inflation and Q1 GDP statistics, the EURUSD falls back to the critical support level of 1.0700. Eurostat stated that inflation stayed nearly constant in April, and Q1 GDP exceeded expectations. The Eurozone’s headline inflation increased in line with the consensus and the previous figure of 2.4%. Annual core inflation, which excludes volatile food and energy prices, increased at a faster rate of 2.7% than expected, but slowed from the previous reading of 2.9%.
Monthly headline and core inflation rates increased by 0.6% and 0.7%, respectively. The Eurozone economy grew at a high 0.3% rate in Q1, exceeding estimates of 0.1% and a flat performance in the fourth quarter of 2023. Annually, the Q1 GDP growth rate exceeded projections of 0.2%.
Steady preliminary inflation in April, paired with robust Q1 GDP growth, is less likely to influence financial markets’ views of European Central Bank rate cuts, which are slated to begin in June.
The US dollar is projected to continue strong amid caution ahead of the Fed’s policy decision.
On the other side of the Atlantic, the United States dollar rebounds amid caution ahead of the Federal Reserve’s monetary policy announcement, which is expected on Wednesday. The US Dollar Index (DXY) rebounds from 105.50 while remaining within a two-week trading range of 105.40-106.50. The Federal Reserve is anticipated to maintain interest rates constant in the 5.25%-5.50% range for the sixth meeting in a row, as price pressures in the United States remain stubbornly high due to strong wage growth.
The Fed will most likely support holding interest rates at their current level for an extended period of time until it is more confident. That inflation will return to the desired rate of 2%. Investors would be looking for signs. That the Fed will stick to its three rate-cut estimates for this year, as shown in March’s dot plot.
Aside from Wednesday’s Fed policy announcement. Investors will watch the US ADP Employment Change and the ISM Manufacturing Purchasing Managers Index (PMI) report for April.
