Chances of further European interest rate cuts recede

The single currency is preparing to break the price range below the $1.09 barrier.

The euro rose in the European market on Monday against a basket of global currencies, maintaining its gains for the third consecutive day against the US dollar, after the release of inflation data higher than market expectations in Europe during May, which renewed inflationary pressures on the European Central Bank, and reduced the chances of additional cuts in European interest rates this year.

The single European currency, the euro, has been stuck in a narrow trading range since mid-May, and this range may be gathering momentum before breaking above the psychological barrier at $1.09.

The market is awaiting the European Central Bank's monetary policy meeting in the coming days, looking for more directions and evidence about the future path of interest rates after the likely widespread cut of about 25 basis points.

The market is also awaiting the US monthly jobs report for May this week, which provides further clues about the future of the Federal Reserve's interest rates this year.

Price overview

Euro exchange rate today: The euro rose against the dollar by 0.15% to ($1.0859), from the opening price of ($1.0844), and recorded its lowest level at ($1.0844).

The euro ended Friday's trading up 0.15% against the dollar, in its second consecutive daily gain, due to European inflation data.

The single European currency, the euro, rose 1.7% against the US dollar over the past month of May, in its first monthly gain in 2024, specifically since December 2023.

Supporting the monthly gain, the chances of further European interest rate cuts receded after an expected cut this week at the European Central Bank meeting.

Inflation in Europe Official data released on Friday showed that inflation levels in Europe rose in May, revealing renewed inflationary pressures once again on monetary policymakers at the European Central Bank.

The overall consumer price index rose 2.6% year-on-year in May, above market expectations for a 2.5% rise. The index rose 2.4% in April.

European inflation rises more than expected in May

The core consumer price index rose 2.9% in May, above market expectations for a 2.7% rise. The index rose 2.7% in April.

European Interest The data above reduced the chances of additional European interest rate cuts this year, as markets reduced the pricing of cuts from 75 basis points to 50 basis points this year from the European Central Bank.

The European Central Bank's monetary policy meeting will begin next Wednesday, with decisions to be issued on Thursday, where it is widely expected to cut European interest rates by about 25 basis points, in the first cut in European interest rates since 2014.

The European Central Bank, led by Christine Lagarde, is likely to provide fresh guidance and evidence on possible further cuts in European interest rates, in light of recent economic developments in the eurozone, especially the acceleration of inflation again in Europe last month.

Euro performance forecast

“EUR/USD has built modest upward momentum, even if it remains stuck in a consolidating range. So far, it has been unable to decisively break above the April high of 1.0885. Meanwhile, support around the 1.0785-1.0800 area continues to hold,” said Fawad Razaghzadeh, analyst at City Index.

“The underlying trend looks modestly bullish after breaking the downtrend line established since December. Bulls will remain confident as long as the key support level around $1.0800 holds,” Qazadeh added.

“The big event this week is the ECB meeting, with interest rate cuts well expected, so guidance on future policy moves will be a key driver,” said UBS economist Dominic Schneider. “We think the euro will weaken, especially given its strong rally in recent weeks.”

Schneider explained: If the ECB allows some time before any further rate cuts, the euro will rise as euro zone bond yields rise compared to US yields, potentially sending the euro against the dollar above $1.09.

Schneider added: If the US labor market data is weak, markets may increase the probability of the Federal Reserve cutting interest rates for the first time in July, which would weaken the US dollar further.

Artistic view

Euro to Dollar Price Still Below Broken Support – Today’s Forecast 06-03-2024