The single currency is trying to trade above the $1.09 barrier.

Market awaits more evidence on European interest rate cuts

The euro rose in the European market on Monday against a basket of global currencies, resuming its gains that stopped for two days against the US dollar, approaching its highest level in two months again, amid expectations of further rise for the single currency above the $1.09 barrier due to concerns about the widening interest rate gap between Europe and the United States.

As the market awaits further evidence this week on potential European interest rate cuts after the widely expected cut in June, investors are also awaiting fresh signals on the path of US interest rates.

Price overview

Euro exchange rate today: The euro rose against the dollar by about 0.2% to ($1.0884), from the opening price of trading at ($1.0866), and recorded its lowest level at ($1.0862).

The euro ended Friday's trading flat after falling 0.2% the previous day in a correction from a two-month high of $1.0895.

In terms of last week's transactions, the single currency, the euro, achieved a 0.95% increase against the US dollar, in its fifth consecutive weekly gain.

European interest

The market is now set for the European Central Bank to cut interest rates by about 25 basis points next June, and this decision will not shake the euro much because it has been expected for a long time.

Economic data in Europe last week showed some bullish surprises, with Germany's economy growing better than expected in the fourth quarter of last year and investor sentiment hitting its highest level in two years.

This data reduced the possibility of further cuts in European interest rates after the likely cut in June by about 25 points, pending more evidence about the development of growth and inflation in Europe during the coming period.

This week, traders are awaiting comments from some members of the European Central Bank, led by Council President Christine Lagarde, in addition to data on the main sectors in Europe for May, in search of more evidence about possible cuts in European interest rates.

US interest

Last week's US producer and consumer price data for April have led to higher pricing in the likelihood of a 50 basis point US interest rate cut in September and November.

The cuts could reach 75 basis points, as the Federal Reserve expects in 2024, if inflation continues to slow over the next few months, with the US labor market revealing more weak data.

This week, traders are awaiting comments from some Federal Reserve officials on the development of inflation and interest rates in the United States, in addition to the release of the minutes of the last Federal Reserve monetary policy meeting held in early May.

interest rate gap

The interest rate gap between Europe and the United States is currently at 100 basis points, the smallest gap since May 2022, and is expected to widen to 125 basis points in June in favor of US interest rates.

The euro has already priced in this expectation after falling to a five-month low earlier in April, and the focus has become on what will happen after the expected decision in June.

Euro performance forecast

“The broader uptrend from the April low remains intact and is supported by a broad alignment of bullish indicators across technical indicators on the intraday, daily and weekly ranges,” said Scotiabank analyst Sean Osborne.

Osborne explained: The recent decline in the euro-dollar exchange rate appears to be corrective in the short term, and perhaps before another push upwards towards new multi-month highs.

Osborne added: The bigger picture is that the rally remains intact and may take the market back to the $1.1 barrier, and slight declines to the $1.08 area can be expected, but it should remain well supported.

Artistic view

Euro vs Dollar Tests Resistance – Today’s Forecast 05-20-2024