EUR/USD trades cautiously ahead of ECB’s interest rate policy
The EUR/USD pair trades with caution, slightly above the key level of 1.1400 during Asian trading hours on Thursday. The major currency pair is expected to remain sideways, with investors awaiting the European Central Bank's (ECB) interest rate decision announcement at 12:15 GMT.
The ECB is almost certain to reduce its key borrowing rates by 25 basis points (bps), a move that will lower the Deposit Facility Rate and Main Refinancing Operations Rate to 2% and 2.15%, respectively. This will be the seventh consecutive interest rate cut by the ECB and the eighth since June last year, when it initiated its monetary expansion cycle.
Traders are increasingly confident about a seventh consecutive ECB interest rate cut as the disinflation trend in the Eurozone is intact. Preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data showed on Tuesday that inflationary pressures fell below the central bank’s target of 2%.
As the Fed is widely anticipated to lower interest rates, investors will pay close attention to ECB President Christine Lagarde’s press conference to get cues about the likely monetary policy stance for the second half of the year. Market participants would also like to know the status of trade negotiations with the United States (US).
Meanwhile, the US Dollar (USD) struggles to hold ground near the six-week low as weak US data has renewed stagflation risks. The ISM Services Purchasing Managers’ Index (PMI) data unexpectedly declined in May, while its sub-components indicated that input costs continued to expand at a faster pace. The ADP Employment Change data, which reflects labor demand in the private sector, showed the addition of fresh 37K workers in May, the lowest reading seen since February 2021.
US President Donald Trump criticized the Federal Reserve (Fed) again for maintaining a restrictive monetary policy stance after weak private employment data.
Going forward, investors will focus on the US Nonfarm Payrolls (NFP) data for May, which is scheduled to be released on Friday.
Source: fxstreet
