Euro gives up gains ahead of US, Eurozone data

The EURUSD pair was struggling to hold above the round-level resistance of 1.0700 in European trading on Monday, as the currency pair exhibited caution ahead of Tuesday’s release of key economic indicators in the Eurozone – preliminary Eurozone Q1 GDP and the Consumer Price Index (CPI) for April.

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

Last week, Banque de France Governor and ECB Council member François Villeroy de Galhau said there was 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 that, “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 rate cut may not necessarily be followed up by a series of other 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.

In Monday’s session, investors focused on the German preliminary inflation data for April, with the annual Harmonized Index of Consumer Prices (HICP) expected to have grown steadily by 2.3%.

(Source: OANDA)