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EUR/USD: Eurozone hawkish data May influence ECB rate decision

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Monday witnessed the Eurozone’s economic indicators leaning towards a hawkish stance for the European Central Bank (ECB), with robust PMI figures suggesting continued growth momentum.

Moreover, a surprising acceleration in negotiated wages from 4.5% to 4.7% year-on-year in Q1 was observed, countering expectations of a critical juncture for a potential rate cut in June.

However, the ECB quickly responded to the wage growth data by publishing a blog post downplaying the rebound, attributing the uptick to one-time payments and forecasting a deceleration in wage pressures for 2024.

Despite the ECB’s attempt to temper wage growth concerns, the likelihood of a rate cut being postponed past June remains minimal, even if the upcoming Consumer Price Index (CPI) data, due next week, registers higher than anticipated. The recent economic data has also raised the probability of the ECB adopting a more hawkish tone at its June meeting.

On Monday, attention is focused on the eurozone calendar, where remarks from ECB’s hawkish members, including Isabel Schnabel, Madis Muller, and Joachim Nagel, are anticipated. Their comments could potentially steer the post-June policy narrative even more towards hawkishness, following the latest economic figures.

The currency pair is currently challenging the 1.0800 support level, with its performance largely influenced by the dynamics of the US dollar. The upcoming US core Personal Consumption Expenditures (PCE) data, set for release in a week, is expected to have a more significant impact than the eurozone CPI data.

However, the possibility of higher inflation in the eurozone combined with recent optimistic interpretations of US inflation data could renew bullish sentiment for the EUR/USD. As a result, a short-term rise to 1.0900 is considered more probable than a decline to 1.0700.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.



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