The euro-dollar currency pair trades slightly higher to near 1.1325 during European hours on Monday, further gaining ground after touching a three-week low of 1.1265 late last week.
EURUSD rose as the dollar faces persistent uncertainty over US-China trade relations and as investors turn cautious ahead of the Federal Reserve’s monetary policy announcement on Wednesday.
The DXY Dollar Index, which tracks the greenback’s value against six major currencies, dropped to near 99.80, but is trading inside Friday’s range.
Over the weekend, President Donald Trump expressed confidence while speaking with reporters that bilateral trade deals with some of his trading partners could be announced this week. However, he confirmed not having any dialogue with Chinese leader Xi Jinping this week, but didn’t deny any ongoing trade discussions between officials from both nations.
While the announcement of bilateral trade deals by Washington would indicate that fears of tariffs proposed by President Trump have peaked, the long-lasting standoff between the world’s two largest powerhouses will continue to keep investors on their toes.
This week, the major trigger for the US dollar will be the Fed’s monetary policy meeting, which will be announced on Wednesday. It is widely anticipated to leave interest rates unchanged in the range of 4.25%-4.50%.
Therefore, investors will pay close attention to the monetary policy statement and Fed Chair Jerome Powell’s press conference to get cues about the interest rate outlook.
Better-than-expected nonfarm payrolls (NFP) data for April on Friday and elevated consumer inflation expectations in the face of Donald Trump’s tariff policy will be a limiting factor for the Fed to reduce interest rates.
The Euro trades broadly flat while traders are increasingly confident that the European Central Bank will reduce interest rates again in the June policy meeting despite hotter-than-expected Eurozone Harmonized Index of Consumer Prices (HICP) data for April.
The data showed on Friday that the core HICP – which excludes volatile components like food, energy, alcohol, and tobacco – grew at a faster pace of 2.7% compared to estimates of 2.5% and the March reading of 2.4%. In the same period, the headline HICP rose steadily by 2.2% on year, faster than estimates of 2.1%.
Traders continue to bet supporting more interest rate cuts from the ECB as they are more concerned about the Eurozone economic outlook due to the fallout of Trump’s protectionist policy than the slight increase in inflationary pressures.
EURUSD chart by TradingView
(Source: OANDA)
