The euro-dollar currency pair edged lower to near 1.1345 in North American trading on Monday.
The EURUSD edged lower as the euro underperforms its peers ahead of this week’s flash Harmonised Index of Consumer Prices (HICP) data for April and Q1 Gross Domestic Product (GDP) from the Eurozone and its major nations.
The inflation and economic growth data will significantly influence market expectations for the European Central Bank’s monetary policy outlook.
According to market expectations, the Eurozone headline HICP would return to the ECB target of 2%, the slowest growth in price pressures since October 2024. In March, the inflation data rose by 2.2%.
The Eurozone GDP growth is estimated to have grown at a steady pace of 0.2% QoQ in the first quarter. Moderate inflation growth would increase traders’ confidence that the ECB would cut rates again in the June policy meeting.
Meanwhile, Reuters reported on Saturday that ECB policymakers are becoming increasingly confident about cutting rates in June as inflation continues to fall. Still, there is little to no appetite for a big move.
However, the report has not highlighted the names of ECB officials who have guided the chances of further monetary policy expansion.
ECB policymaker and Dutch central bank governor Klaas Knot stated in an interview with Dutch financial daily FD over the weekend that the June monetary policy will be more “complex” as long-term inflation risks have skewed on “both sides”.
Knot signaled caution that the tariff policy by the US could lead to a decline in demand and disinflation in the near term.
“In the short term, it’s 100% clear that the demand shock will dominate, so inflation will go down,” Knot said.
On Momday, ECB policymaker and Finnish central bank governor Olli Rehn indicated that more interest rate cuts would be necessary if inflation undershoots the central bank’s target of 2%.
Rehn said that he agrees with market expectations that “tariffs will slow down inflation”.
On the global front, uncertainty over trade relations between the US and the Eurozone has also kept the Euro on the sidelines.
EU Economic Commissioner for Trade Valdis Dombrovskis has expressed concerns over having a deal with the US in the near term, while speaking with reporters on the sidelines of the IMF meetings in Washington, Reuters reported.
“There’s a lot of work ahead to come to more concrete parameters and elements and areas of cooperation which would allow us to avoid the implementation of tariffs,” Dombrovskis said.
EURUSD chart by TradingView
(Source: OANDA)
