Euro down on rate cut bets

EUR/USD down after a breakdown below the round-level support of 1.0700 in Thursday’s early American session. The upside in the major currency pair remains restricted around 1.0736 this week as the European Central Bank (ECB) is expected to start lowering its key borrowing rates from the June meeting. The Federal Reserve’s (Fed) slightly less-hawkish guidance on interest rates fails to keep supporting the downside. 

April’s preliminary inflation readings for the Eurozone showed that annual headline inflation grew steadily by 2.4%. In the same period, the core Consumer Price Index (CPI), which excludes volatile food and energy prices, decelerated to 2.7% from 2.9% in March. Although investors forecasted a sharper decline to 2.6%, the data signalled that Eurozone inflation is on course to return to the desired rate of 2%. Therefore, ECB policymakers remain committed to reducing its Main Refinancing Operations Rate from June.  

Meanwhile, ECB policymakers are divided about whether the central bank should extend the rate-cut cycle to policy meetings beyond June. Currently, financial markets speculate that the ECB will cut interest rates three times this year. 

On the other side of the Atlantic, the US Dollar is under pressure as the Fed remains optimistic about approaching quantitative easing this year despite acknowledging that progress in reducing inflation to 2% has stalled.