EURUSD recovers from 1.0800 as the preliminary Eurozone Composite PMI for May exceeds expectations.

The EURUSD is seeing strong buying demand after hitting a new weekly low near the critical support of 1.0800 in Thursday’s European session. The major currency pair benefits from a drop in the US dollar and solid Eurozone preliminary PMI data for May.

The US Dollar falls amid strong Fed rate-cutting chances for September.

The US Dollar Index (DXY), which tracks the value of the US dollar against six major currencies, falls to 104.77. As the rebound appears to be stalled just below the critical resistance level of 105.00. The Recovery The increase in the US Dollar appears to be receding. As investors remain convinced that the Federal Reserve (Fed) will begin lowering interest rates after the September meeting.

Traders did not reduce bets on Fed rate reduction in September. Despite Fed policymakers’ hawkish comments on the interest rate outlook in the Federal Open Market Committee (FOMC) minutes for the May meeting, which were released on Wednesday.

The FOMC minutes were expected to have a transitory impact on the US Dollar. As officials were concerned about slowing progress in the disinflation process due to three hot inflation readings in January-March. While investors’ strong prediction on rate decreases in September is based on a projected decline in the inflation statistics reported by the Consumer Price Index (CPI) report for April.

Daily Market movers: EURUSD gains due to good preliminary Eurozone PMI data.

The EURUSD has recovered quickly after S&P Global issued solid preliminary Purchasing Managers Index (PMI) data for May. According to the agency, the Manufacturing PMI increased at a higher rate to 47.4, up from 46.2 forecasts and the previous reading of 45.7. However, a value less than 50.0 is considered a contraction. The composite PMI rises to 52.3, exceeding the consensus of 52.0 and the previous reading of 51.7. The Services PMI, which measures the service sector, rose gradually to 53.3 but fell short of estimates of 53.5.
Furthermore Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank (HCB), commented on the flash PMI data: “We are heading toward the proper direction. Given the PMI statistics in our GDP nowcast. The Eurozone is expected to grow at a rate of 0.3% in the second quarter, excluding the possibility of a recession. Moreover The service sector is primarily responsible for growth. Which has been prolonged for another four months. Manufacturing is becoming less of an economic stumbling block. And optimism about future output has grown even more. With all of this in place, it appears conceivable that GDP growth of about 1% will be achieved this year, with some upside risk.

The European Central Bank is expected to decrease interest rates three times by the end of the year.

Going forward, the Euro will be led by market expectations that the European Central Bank (ECB) would lower interest rates at its July meeting. The ECB is largely expected to start. The key borrowing rate was lowered following the June meeting. As a result, investors remain concerned about the ECB’s future rate decreases.
Many ECB members prefer to remain data-dependent for a follow-up rate decrease in July. As aggressive monetary policy easing could reignite price pressures. Furthermore, ECB policymakers are concerned that subsequent rate decreases will have an influence on the balance of monetary stimulus, inflation, and other financial triggers.
For the entire year, financial markets expect the ECB to slash interest rates three times. According to UBS, after the initial drop in June. The ECB may begin on a long and gradual succession of rate cuts. These would include 25 basis point cuts each quarter, resulting in a total decline. 75 basis points in 2024, with 100 basis points in 2025.