The EURUSD exchange rate tests a resistance level ahead of further economic data.
EURUSD – Daily Chart
EURUSD is testing the 1.0722 level but has not seen a strong push higher. That could lead to losses if the data supports the US dollar.
Eurozone inflation was steady, as expected in April. However, a key indicator of underlying price pressures slowed down, solidifying the case for the European Central Bank to cut interest rates in June. Policymakers have said that the June cut is almost a done deal. That is putting pressure on the price of the euro versus the dollar.
According to Eurostat data, core inflation in the EU, which excludes food and energy prices, slowed to 2.7% from 2.9%. Services inflation, stuck at 4% since the start of the year, also eased to 3.7%.
The ECB raised interest rates at the fastest pace on record in 2022 and 2023 to combat surging prices, but it has been holding its benchmark rate steady at 4% since September.
There has still been a divide, with some policymakers appearing to walk back previous comments that the June rate cut would rapidly remove higher rates since inflation was on track for the bank’s 2% target in 2025.
However, tensions in the Middle East have led to higher oil prices, and central banks are cautious when making significant policy changes.
The United States economy will see ISM Manufacturing data late on Wednesday. The number is expected to dip to 50, which is the critical level for expansion or contraction. A number lower than 50 could add to pressure on the Fed to ease interest rates.
The central bank will announce its latest policy decision on Thursday. However, analysts have pushed their rate cut expectations further out. Investment bank BNP Paribas was the latest to do so, with an expected cut in December after a previous prediction of July.
With the ECB set to cut rates in June, the Federal Reserve meeting this week will be crucial for the EURUSD. If the Fed remains hawkish, then the dollar could see considerable strength.
Last week’s personal consumption data from the US highlighted a 2.8% rise in March, which was higher than the 2.7% expected by the market.
