EUR/USD exhibits resilience, bouncing back from the 1.0630 level, as the US dollar faces renewed downward pressure. This downward trend in the greenback is fueled by growing expectations of the Federal Reserve pausing its monetary tightening at the upcoming June meeting.
Notably, comments from Fed officials Harker and Jefferson on Wednesday further support the notion of a potential pause, although stronger-than-anticipated US labor market data released on Thursday could challenge this idea soon.
Additional support for the euro comes from influential European Central Bank (ECB) speakers, Lagarde, Kazaks, and Rehn, who advocate for maintaining a tightening bias in light of persistent inflationary pressures.
Regarding inflation, flash Consumer Price Index (CPI) data for the Eurozone indicates a year-on-year increase of 6.1% in May, with the core print showing a 5.3% gain. Despite some disinflationary forces at play during the month, CPI figures remain significantly above the ECB’s 2% target.
Turning to the United States, the ADP report reveals that the private sector added 278,000 jobs in the previous month, while initial jobless claims increased by 232,000 for the week ending May 26th. Later in the North American session, market attention will shift to the ISM Manufacturing data, Construction Spending, and the final S&P Global Manufacturing PMI.
Key Considerations for EUR Outlook
The recent sell-off in EUR/USD finds support around the two-month low of 1.0630 reached earlier this week.
Going forward, the pair’s movement is expected to closely track the behavior of the US dollar, which will likely be influenced by any divergence in monetary policy between the Federal Reserve and the ECB.
Looking ahead, the continuation of hawkish rhetoric from the ECB supports the likelihood of further interest rate hikes. However, this perspective contrasts with some signs of economic momentum loss in the region.
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