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Euro tumbles on firm ECB rate cut bets for June

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The EURUSD extended its downside to near five-month low around 1.0660 on Friday, with the major currency pair falling sharply on firm speculation that the European Central bank will begin reducing interest rates from the June meeting.

The ECB kept its key borrowing rates unchanged at 4.5% on Thursday to maintain downward pressure on the consumer price inflation.

In the monetary policy statement, the ECB said that restrictive financial conditions and interest rate hikes yet made are weighing on the overall demand and pushing downward pressure on inflation.

Also, the ECB said that it will remain data-dependent to determine how long interest rates are needed to remain restrictive. The central bank refrained from committing to any particular rate path.

The speculation for ECB pivoting to rate cuts from June strengthened after President Christine Lagarde said that if a fresh assessment increased policymakers’ confidence that inflation is heading back to target, then it “would be appropriate” to cut interest rates, Reuters reported.

Meanwhile, the market sentiment is downbeat as traders pare big bets leaning to the Federal Reserve beginning to reduce interest rates from the June meeting.

S&P 500 futures have posted losses in the European session. 10-year US Treasury yields fell slightly after refreshing more than four-month high near 4.60%. The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, jumped to a near five-month high around 106.00.

Going forward, investors will shift focus to the monthly Retail Sales data on Monday. Retail sales is a leading indicator of consumer spending. Higher retail sales suggests robust consumer spending, which leads to a stubborn inflation outlook.

(Source: OANDA)