Euro above 1.115 on improved market optimism

EURUSD recovered its recent losses from the previous session, trading around 1.1170 in Asian markets on Tuesday. This follows the currency pair hitting 1.12 for the first time in 2024.

Optimism prevails after US Air Force General C.Q. Brown, chairman of the Joint Chiefs of Staff, told Reuters early Tuesday concluding a three-day trip to the Middle East, that concerns about an imminent broader conflict in the region have diminished.

An exchange of fire between Israel and Lebanon’s Hezbollah did not escalate further. However, Hamas has rejected new conditions proposed by Israel in ceasefire negotiations in Egypt, insisting that Israel adhere to the terms outlined by US President Joe Biden and the UN Security Council.

On the Fedspeak front, San Francisco Federal Reserve President Mary Daly stated on Monday in an interview with Bloomberg TV that “the time is upon us” to begin cutting interest rates, likely starting with a quarter-percentage point reduction.

Daly suggested that if inflation continues to slow gradually and the labour market maintains a “steady, sustainable” pace of job growth, it would be reasonable to “adjust policy at the regular, normal cadence.”

On the EUR front, traders assess the extent to which consolidated expectations of incoming rate cuts by the Federal Reserve will impact European Central Bank borrowing costs. Additionally, GfK Consumer Confidence Survey and Gross Domestic Product (GDP) data will be eyed later in the day.

ECB Governing Council member Olli Rehn stated last week that the slowdown in inflation, coupled with weakness in the Eurozone economy, bolsters the case for lowering borrowing costs next month, according to Bloomberg.

The subdued growth outlook in Europe, particularly in manufacturing, reinforces the argument for a rate cut in September.

(Source: OANDA)