Euro up on low volatility

EUR/USD jumps to 1.0870 in Monday’s New York session. The major currency pair strengthened after the United States (US) Institute of Supply Management (ISM) reported that the Manufacturing PMI surprisingly dropped to 48.7 from the estimates of 49.8 and the former release of 49.2. A figure below the 50.0 threshold is itself considered a contraction in the sector. Other sub-components, such as Price Paid and New Orders indexes, missed estimates, suggesting a decline in input prices and a weak demand outlook, respectively.  

This has put more pressure on the US Dollar. the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, tumbles to 104.26. The USD Index was already under stress due to slight improvement in market speculation for the Federal Reserve (Fed) to begin reducing interest rates from the September meeting. 

The CME FedWatch tool shows that the probability of a rate cut by the Fed in the September meeting has increased to 52% from 49% recorded a week ago. Market speculation for the Fed reducing interest rates in September improved after the Personal Consumption Expenditures Price Index (PCE) report showed on Friday that the Personal Spending growth momentum slowed to 0.2% in April from the estimates of 0.3% and the prior reading of 0.7%. However, the core PCE inflation, the Fed’s preferred inflation gauge, rose expectedly by 2.8% on a year-over-year basis. 

This week, the shared currency pair is expected to remain volatile as investors shift focus to the European Central Bank’s (ECB) interest rate decision, which will be announced on Thursday.