EUR/USD Climbs above 1.0850 in Anticipation of US ISM PMI Data
The EUR/USD pair gathers momentum near 1.0850 in the early Asian session on Monday. The markets believe the Federal Reserve requires additional evidence to increase confidence that inflation will reach its 2% target. It is widely anticipated that the European Central Bank (ECB) will reduce the interest rate on Thursday.
The EUR/USD pair extends its advance to approximately 1.0850 in the early Asian session on Monday. The more favorable-than-anticipated Eurozone HICP inflation data and the lower-than-anticipated US PCE inflation data offer some support for the major pair. On Monday, attention will be focused on the US ISM Manufacturing PMI for May, which precedes the European Central Bank's interest rate decision on Wednesday.
As anticipated, US inflation, as measured by the Personal Consumption Expenditures (PCE) Price Index, increased 0.3% on a monthly basis in April, the Bureau of Economic Analysis of the Commerce Department reported on Friday. The PCE figure remained unchanged at 2.7% year-over-year in April, mirroring the increase observed in March and aligning with the projected value.
The annual increase of 2.8% in the Core PCE Price Index, which excludes the volatile costs of food and energy, was consistent with market expectations. Since March 2021, core inflation was at its lowest level. Nevertheless, despite the recent data falling short of inducing the anticipated rate cut by the Fed, investors continue to hold the belief that further evidence is necessary for the Fed to acquire confidence that inflation is progressing in the direction of its 2% target.
The Eurozone's inflation exceeding initial projections may not prevent the ECB from reducing interest rates this week, but it could indicate a cessation in July and a deceleration in rate cuts in the subsequent months. Financial markets have priced in ECB rate decreases of approximately 25 basis points (bps) in June and 57 bps in 2024, as reported by Reuters. After June, traders will closely observe Lagarde's press conference for any new indications regarding the rate-cutting pace. Any dovish ECB message would likely exert pressure on the Euro (EUR) and cause the EUR/USD pair to encounter resistance.
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