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EUR/USD Posts Modest Gains Near 1.0850 Due to a Decline in the US Dollar and Stronger PMI
The EUR/USD pair trades with modest gains near 1.0850 in the early Asian session on Monday. Positive US data and a hawkish posture from the Federal Reserve could boost the USD and limit the upside of the pair. Cipollone of the ECB stated that June rate cuts are warranted due to positive developments in recent data.
In early Asia on Monday, the EUR/USD pair trades in positive territory for the second day in a row at approximately 1.0850. The Euro (EUR) receives some support from the preliminary Eurozone Purchasing Managers Index (PMI) for May, which was stronger than anticipated. Nevertheless, the potential reduction in interest rates by the European Central Bank (ECB) in the future months could restrict the main pair's ascent.
The more optimistic remarks of US Federal Reserve (Fed) officials and the improved economic data of the United States could spark speculation that the easing cycle will be delayed this year. According to the CME FedWatch instrument, investors have reduced the probability of a Fed rate cut in September from 64% one week ago to 53% at this time. Investors are awaiting Thursday's release of the preliminary US Gross Domestic Product (GDP) Annualized for the first quarter (Q1). The first quarter GDP is anticipated to increase by 1.5%, up from 1.6% previously. The Greenback is likely to appreciate in the immediate future due to the firmer reading.
As of Friday, US orders for durable goods increased by 0.7% month-over-month in April, surpassing the -0.8% forecast, from the revised downward trend of 0.8% in March. In the interim, the University of Michigan Consumer Sentiment Index exhibited an improvement from 67.4 in April to 69.1 in May, surpassing the projected value of 67.5. Five-year inflation expectations at the UoM decreased from 3.1% to 3%.
Sunday, ECB policymaker Piero Cipollone stated that recent data points in the correct direction, suggesting that an interest rate cut in June is warranted. ECB President Christine Lagarde, meanwhile, expressed "absolutely certain" that inflation in the Eurozone is under control and that a reduction in interest rates is imminent the following month. A widely anticipated reduction in financing costs by the ECB in June could potentially weaken the EUR relative to its competitors.
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