Euro settles above 1.07

Published on 29.04.2024 11:45

The EUR/USD pair struggles to sustain above the round-level resistance of 1.0700 in Monday’s early American session. The major currency pair exhibits caution ahead of the release of key economic indicators in the Eurozone, such as preliminary Eurozone Q1 Gross Domestic Product (GDP) and the Consumer Price Index (CPI) data for April, which will be published on Tuesday.

Eurozone’s economic data will influence speculation about interest rate cuts by the European Central Bank (ECB). Currently, investors’ expectations that the ECB will start to cut its Main Refinancing Operations Rate from the June meeting strengthened as policymakers see them as reasonable.

Last week, Banque de France Governor and ECB Council member François Villeroy de Galhau said there is no need to wait much longer to start interest rate cuts if other things remain constant. Villeroy expects that energy prices are unlikely to rise further despite Middle East tensions and, hence, should not impact the ECB’s plans to pivot to interest rate cuts starting in June.

While a rate-cut move in the June meeting is widely expected, there is uncertainty over whether the ECB will extend the rate-tightening campaign. ECB policymakers share different opinions on that as Villeroy said last week: “June rate cuts should be followed by further cuts, at a pragmatic pace.” On the contrary, ECB policymaker and Bundesbank Chief Joachim Nagel said last week that a June interest rate cut may not necessarily be followed up by a series of rate cuts. Nagel remains worried about higher service inflation due to strong wage growth. He is not fully convinced that inflation will actually return to target in a timely and sustained manner.

Meanwhile, the German preliminary inflation data for April remains mixed. The annual Harmonized Index of Consumer Prices (HICP) grew at a higher pace of 2.4% from expectations and the prior reading of 2.3%. The monthly HICP rose steadily by 0.6%. Annual core CPI that strips off volatile food and energy prices grew steadily by 2.2%, while economists forecasted the underlying inflation have grown at a higher pace of 2.3%. Monthly core CPI rose at a slower pace of 0.5% from the estimates of 0.6%