The EUR/USD exchange rate remains steady above the 1.1400 value, early in the week, with forex markets focused on an important meeting between US and Chinese officials on Monday, and Wednesday’s US Consumer Price Index (CPI) data. These factors, along with hawkish commentary from the European Central Bank (ECB) and a weaker US Dollar, are helping the strength of the Euro in the near term.
Euro Supported by ECB’s Hawkish Shift
The Euro rose modestly after comments from ECB policymaker Peter Kazimir suggested that the bank may be near the end of the easing cycle. Kazimir noted that there are still growth risks for the eurozone economy, but inflation concerns are increasing, which might lead the bank to delay monetary stimulus if it is deemed necessary.
Kazimir’s comments helped the EUR/USD pair to bounce off Friday’s lows near the 1.1370 area, and the pair is trading just above the 1.1400 area. This newfound justification of the medium-term expected policy stance by the ECB has provided the common currency with a modest short-term bullish push despite still looming macro uncertainty.
US Dollar Retreats After NFP-Driven Surge
The dollar gained some momentum late last week after the positive Nonfarm Payrolls (NFP) report, but appears to be backing off, as the market waits for more momentum. The US economy added 139,000 jobs in May, slightly above the expectation of 130,000 jobs added; the unemployment rate stayed at 4.2% as wage growth remained at 3.9%, thus easing fears of a slowdown.
However, we saw downward revisions to job growth in prior months, and continued worry about wage inflation, which suggests the Federal Reserve is going down the “wait and see” approach before any cuts in rate. The Federal Reserve is currently in a blackout coming into next week for their decision on a policy, which admittedly creates cautiousness in market activity.
Focus Shifts to US-China Trade Talks in London
Markets are now closely watching a US-China meeting scheduled for later today in London, which could impact global risk sentiment. The goal is to revive progress made during May’s Geneva summit, where both nations agreed to reduce tariffs and reengage on trade matters.
Any positive outcome could lead to a relief rally across global markets and potentially weaken the USD, while a breakdown in talks may prompt risk-off sentiment and USD strength. EUR/USD traders are likely to stay cautious until more clarity emerges.
Eurozone Data Revised Upward but Limited Market Reaction
On the data front, Eurozone Q1 GDP growth was revised higher to 0.6% quarter-on-quarter and 1.5% year-on-year, up from earlier numbers of 0.3% and 1.2%. Similarly, Retail Sales rose 0.1% monthly and beat expectations, rising by 2.3% year-on-year.
While the numbers were stronger than anticipated, potential market reaction was dulled in lieu of the upcoming US CPI report and the current global macro developments.
CPI Release May Dictate Short-Term Direction
With the US inflation report due on Wednesday, market players will be looking for some clues on any impact of tariff policies and the US domestic environment as it relates to price pressures. An unexpectedly hot CPI print may reawaken Fed tightening expectations and keep pressure on EUR/USD, while a softer print could provide an extra boost for the Euro.
For now, EUR/USD remains range-bound, although directional bias is most likely coming from upcoming economic data and geopolitical events.
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