The Euro to Dollar exchange rate fell 1.05 cents yesterday after the strong US March CPI inflation and will likely head to 1.06 if the ECB announces a June rate cut today. Expectations for a FED interest rate cut have been postponed, while markets are expecting the ECB to deliver a rate cut soon, after the Swiss National Bank already did so by lowering interest rates by 25 basis points in the last meeting.

EUR/USD turned bullish this week as the USD kept retreating. with traders fearing a soft CPI inflation report from the US. But the inflation numbers were quite hot, so traders were caught a bit off guard and the USD surged higher sending EUR/USD to 1.0720s. The price held just above the support zone between 1.07 and 1.0720, but if the ECB sounds dovish today, then the support will be broken and we will likely see 1.06 soon.

EUR/USD Chart Daily – Reversing After Failing at the 100 SMA

The European Central Bank (ECB) is expected to maintain the deposit rate at 4.0% in today’s meeting. This consensus aligns with market expectations, which assigns an approximately 90% likelihood to this outcome. Let’s delve into some key points:

1. Inflation Trends:
   • Headline inflation in March declined to 2.4% from the previous 2.6%.
   • The super-core indicator, which excludes volatile components, is currently below 3% for the first time in two years.
   • However, inflation in the services sector remains elevated at 4%.
2. Growth Prospects:
   • Survey data, including the EZ March composite PMI, indicates a positive shift. Business activity expectations reached their most optimistic level since February 2022 during March.
   • Despite progress on inflation, the ECB’s messaging suggests that confidence in inflation won’t be fully achieved until May, when Q1 wage figures are released.
3. Forward Guidance:
   • Officials continue to signal a rate reduction in June. Even arch-hawk Holzmann agrees with this conclusion.
   • While the April decision appears predictable, attention will focus on any changes to the policy statement and signals about future actions.
4. Market Pricing:
   • Beyond April, June is fully priced for a 25bps decrease.
   • The next rate cut is anticipated in September, with a total of 88bps of loosening expected by year-end.

EUR/USD Live Chart