Euro steady awaiting key figures

The Euro is trending downwards and is sitting around the 1.0820 mark during the early European trading hours on Friday. There is a raft of key data due to hit the market including German Retail Sales which is a key indicator of consumer spending and the US Core Personal Consumption Expenditure (PCE) Price Index inflation due during the American market session. Median market forecasts expect Core PCE Price Index inflation to hold steady at 2.8% for the year ended in April, with MoM Core PCE Price Index inflation forecast to hold at 0.3%.

A downward revision to U.S. GDP on Thursday stoked expectations that the Federal Reserve has room to cut rates this year, although investors for a change took the bad news (of weaker growth) as bad news, taking U.S. stocks, the dollar and Treasury yields lower.

Markets are pricing in 35 bps of cuts from the Fed this year, with a 50% chance of a rate cut in September.

The ever-shifting expectations around U.S. rates has taken a toll on the dollar, which is set for a first monthly loss this year against the euro, Sterling, Aussie, kiwi and even the yen, although the yen's miniscule gain is a result of the suspected intervention earlier this month.

Eurozone inflation data will also be released which is expected to come in at 2.5% for May after staying stable in the last couple of months at 2.4%, while core inflation is expected to be steady at 2.7%, according to a Reuters poll.

Investors will be parsing through the data to gauge the trajectory the European Central Bank is likely to take on rates. While a rate cut in June is all but certain, the focus is squarely on what comes after that.

And so, investors are likely to be extremely sensitive to even a small beat or a miss. Markets are pricing in 60 bps of cuts from the ECB this year but a lot will depend on the inflation and wage growth readings over the coming months.

Traders are pricing in higher odds of a rate trim from the Federal Open Market Committee (FOMC) in September. At current cut, rate markets are betting there is only a 49% chance of the FOMC holding steady on rates in September, with over 50% odds of at least a quarter-point cut. These adds may change if data, especially from the US today falls short of expectations.