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EUR/USD weakens on firm ECB rate-cut bets, firm US Dollar

EUR/USD extends its losing spell for the third trading session on Thursday. The major currency pair is on the back foot due to firm speculation that the European Central Bank (ECB) will start lowering its interest rates in June. A sharp decline in the Eurozone inflation has allowed ECB policymakers to consider that prospect. Most ECB policymakers also expect that the rate-cut cycle will continue beyond June as inflation is on course to return to the desired rate of 2%, and the service inflation doesn’t seem stubborn anymore. Services inflation softened to 3.7% in April after remaining steady at 4.0% for five straight months. Traders are pricing in three rate cuts by the ECB this year. Contrary to the majority of ECB policymakers, who broadly agree over expectations of reducing interest rates from June, one of its Governing Council members and Governor of Austria's central bank, Robert Holzmann, said in Wednesday's early New York session that he doesn't see a reason to cut key interest rates "too quickly or too strongly," Reuters reported. Daily digest market movers: EUR/USD drops as US Dollar advances - EUR/USD extends its correction to 1.0730 as investors turn risk-averse. The market sentiment turns downbeat as US Federal Reserve (Fed) policymakers maintain hawkish guidance on interest rates. - On Wednesday, Boston Fed Bank President Susan Collins favored for interest rates remaining steady at their current levels until she gets greater confidence that inflation will sustainably return to the desired rate of 2%. Collins added that “A slowdown in activity will be needed to ensure that demand is better aligned with supply for inflation to return durably.” Her comments indicated that the US economic outlook is strong even though interest rates remain higher for a longer period. - Apart from Collins, Minneapolis Fed Bank President Neel Kashkari also remained lean towards maintaining the current interest rate framework as it is for the entire year. Kashkari remains concerned over stalling progress in inflation declining to 2% amid a strong housing market. When asked about an interest rate cut, Kashkari said weakness in the job market could justify it. - Amid dismal market sentiment, the appeal for safe-haven assets such as the US Dollar (USD) and bond yields has improved. The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, moves higher to 105.70. 10-year US Treasury yields jump to 4.52%. - This week, investors look at Fed speakers to project forward moves in the US Dollar due to the absence of top-tier US economic data. However, next week, the major trigger will be producer and consumer inflation data.. Hot inflation numbers would diminish prospects of rate cuts this year. Technical Analysis: EUR/USD falls to near 1.0730 EUR/USD continues its losing streak for the third trading day in a row. The major currency pair drops to near the 20-day Exponential Moving Average (EMA), which trades around 1.0732, suggesting that the near-term outlook has turned uncertain. The shared currency pair exhibits a sharp volatility contraction due to a Symmetrical Triangle formation on a daily timeframe. The upward-sloping border of the triangle pattern is plotted from October 3 low at 1.0448 and the downward-sloping border is placed from December 28 high around 1.1140. The 14-period Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, suggesting indecisiveness among market participants.

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Publication date:

2024-05-09 13:35:26 (GMT)

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