EURUSD Consolidates around 1.0770 after falling from 1.0800 as Investors expect the ECB to lower interest rates in June.

EURUSD is down 0.10% at 1.0760 in Tuesday’s European session. The shared currency pair is trading broadly Sideways around 1.0770, with Investors unsure due to a lack of high quality data from the United States (US) and the Eurozone.

The Speculation that the Fed will decrease interest rates beginning in September has grown.

The rise in the major currency pair paused near 1.0800 as the US Dollar (USD) stabilized. After investors priced in dismal US Nonfarm Payrolls (NFP) and ISM Services Purchasing Managers Index (PMI) data for April fueled anticipation. That the Federal Reserve (Fed) may lower interest rates following the September meeting. According to the CME FedWatch tool, traders expect a 67% possibility that rates will go below current levels in September, up from 46% a week earlier.

Despite falling confidence in the US economic outlook. Fed members believe that interest rates should remain low for an extended length of time due to persistent inflation. Richmond Fed Bank President Thomas Barkin stated on Monday. That inflation concerns are on the rise, and that demand must be reduced to complete the struggle against inflation.

The Institute for Supply Management (ISM) has reported significantly higher price paid indexes for both manufacturing and services PMI. This means that enterprises’ input prices have risen significantly, indicating a tenacious stance on price pressures.

Daily Market movers: EURUSD moves sideways following a correction from 1.0800

The EURUSD is trapped in a tight range around 1.0770 due to the lack of tier-1 Eurozone economic data this week. Investors are anticipated to forecast the Euro’s next move based on speculation regarding the European Central Bank (ECB) interest rate outlook.
Financial markets believe that the ECB will continue its rate-cutting campaign, which is set to begin at the June meeting. ECB policymakers forecast three rate decreases this year, which is consistent with market estimates.

ECB Stournaras’ prediction of three rate cuts this year is in line with market expectations.

Yannis Stournaras, ECB policymaker and Bank of Greece Governor, remarked in an interview with a Greek media source. he expects three rate decreases this year. He believes a rate decrease in July is also probable, and that the Eurozone’s economic recovery in the first quarter of the year makes three cuts more plausible than four.

EURUSD is down 0.10% at 1.0760 in Tuesday’s European session. The ECB’s confidence in starting to lower interest rates in June has grown as price pressures have continuously eased. The eurozone’s core Consumer Price Index (CPI), the ECB’s preferred inflation metric, has been steadily dropping since July 2023. The annual core CPI fell to 2.7% in April, indicating that inflation is on track to revert to the target rate of 2%.

In addition, a rapid decrease in Eurozone service inflation has increased the ECB’s confidence in decreasing interest rates from June meeting. The annual Eurozone service inflation rate fell to 3.7% in April after holding around 4% for five months. Regarding this, ECB policymaker Philip Lane stated that April inflation data finally showed improvement on service prices. However, he emphasized that the ECB would continue to focus on services to avoid derailing disinflation later on.
Meanwhile, Eurostat published solid retail sales figures for March. Monthly retail sales increased by 0.8%, exceeding expectations of 0.6% after falling by 0.3% in February. Retail Sales rose 0.7% year on year after falling 0.5% (revised from -0.7%) in February.