- The EUR/USD is likely to hover around the 1.1400 mark as the ECB prepares to announce its monetary policy.
- The ECB is anticipated to lower its deposit facility rate by 2%, reducing it by 25 basis points.
- Weak data from the US raises concerns about stagflation and shifts attention to upcoming NFP statistics.
The EUR/USD pair has been trading cautiously, moving slightly above the important 1.1400 level during Thursday’s Asian session. Major currency pairs are expected to show limited movement, as investors await the European Central Bank’s (ECB) interest rate decision scheduled for 12:15 GMT.
There is a high likelihood that the ECB will cut its main borrowing rate by 25 basis points. This adjustment aims to bring down the deposit facility rate and the major refinance rate to 2% and 2.15%, respectively. This would mark the eighth reduction since the ECB initiated seven consecutive rate cuts beginning in June of last year.
Traders seem increasingly confident regarding the ECB’s seventh consecutive rate cut, as the developmental trends in the eurozone appear stable. Preliminary Eurozone Harmonized Consumer Prices (HICP) data released on Tuesday indicated that inflationary pressures have dropped below the central bank’s 2% target.
With the Federal Reserve widely expected to decrease interest rates, the spotlight will be on ECB President Christine Lagarde’s upcoming press conference, which may provide insights into their monetary policy direction for the rest of the year. Market participants are also keen to learn about the status of trade negotiations with the US.
Meanwhile, the US dollar is facing challenges as it struggles to maintain its position near a six-week low, partly due to disappointing data from the US that raises the risk of stagflation. Although the ISM Services Purchasing Managers Index (PMI) unexpectedly fell in May, its subcomponents indicate that input costs continue to rise. Additionally, the ADP employment report reflected a modest increase of just 37,000 jobs in May, the lowest figure since February 2021.
US President has once again criticized the Federal Reserve for sticking to a restrictive monetary policy stance following the weak private employment data.
Looking ahead, investors are set to focus on the US Non-Farm Payroll (NFP) data for May, which is due to be released on Friday.
