The euro exchange rate is showing slight changes at the beginning of the week. Following three days of a rebound in the EUR/USD pair, the exchange rate has managed to maintain a stable level ahead of the European Central Bank's (ECB) meeting scheduled for Thursday. Currently, EUR/USD is in a sideways trend, hovering around the 1.0880 mark after the close of the previous week. During Monday’s European session, the pair experienced minimal fluctuations. There is key support at the 1.08 level, where market demand may become more active and potentially influence the direction of the pair.
Data from the United States released on Friday revealed that the Personal Consumption Expenditures (PCE) inflation rate increased by 2.7% year-on-year in April. This figure was consistent with both the March reading and market forecasts. Additionally, the core PCE Price Index, which excludes food and energy prices, rose by 2.8% during the same period, also in line with expectations. These inflation data posed challenges for maintaining the strength of the US dollar, thereby contributing to the strengthening of the EUR/USD pair ahead of the weekend.
Today's economic readings provided further insights. For the United States, the ISM Manufacturing Index, which is considered a more critical indicator, showed a significant decline in industrial performance compared to forecasts. This substantial drop led to a sharp weakening of the dollar's exchange rate, causing the EUR/USD pair to move back below the 1.09 level. The reaction in the market underscores the importance of these indicators and their immediate impact on currency values.
Despite the busy economic calendar for the week, which includes numerous events, the highlight will be the ECB meeting on Thursday. This meeting is highly anticipated and is expected to have a significant impact on the euro's exchange rate. Market participants are keenly watching for any announcements or policy changes that may emerge from the meeting.
Last Friday, the Eurozone reported an unexpectedly high inflation reading, which helped explain the recent strength of the euro. This development is particularly noteworthy given the widespread expectation that the ECB will almost certainly cut interest rates on Thursday. The high inflation figures provide context for the euro's resilience despite the anticipated rate cut.
A scenario involving a "hawkish cut" by the ECB is being considered. In this scenario, the central bank would proceed with cutting interest rates, an action that markets have already factored in. However, the accompanying statement could include a series of hawkish comments, signaling a cautious approach and suggesting that similar rate cuts are unlikely in the near future. This strategy aims to manage market expectations and maintain a balanced approach to monetary policy.
03.06.2024
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