Future US rate cuts to boost Euro

The Euro remains firmly above the 1.10 mark against the US dollar in today’s trading session after the release of disappointing economic data from the US yesterday heightened expectations that the US Federal reserve will end their rate hiking cycle next month before delivering a rate cut before the end of the year.

U.S. consumer confidence fell to a nine-month low in April as higher rates begin to take their toll on consumers and leads many to believe that a recession is poised to begin in the near future, a survey showed on Tuesday.

The Conference Board said its consumer confidence index fell to 101.3 the lowest since July 2022 from a revised 104.0 in March. Analysts had expected the index to be unchanged from March at 104.0.

"While consumers' relatively favourable assessment of the current business environment improved somewhat in April, their expectations fell and remain below the level which often signals a recession looming in the short-term," said Ataman Ozyildirim, senior director of Economics at The Conference Board.

The news has all but guaranteed the Fed will finish the rate hiking program next month and are are widely expected to raise rates by another 25 bps at next week's meeting, but they are seen pausing in June. The rate futures market has also factored in roughly 50 bps of rate cuts by the end of the year.

"The dollar is struggling to build on last week's gain as coming data could show slower U.S. growth and lower inflation, outcomes that would cement the case for a mid-year rate pause," said Joe Manimbo, senior market analyst at Convera in Washington.

Looking further ahead today, the main drivers of the EUR/USD currency pair will be the release of the latest durable goods order figures from the US which are expected to hit the market at 0.8 which is a marked improved on last month’s number of -1.

If analysts are correct this could provide some short term relief for the greenback but it seems as if the wheels have already been set in motion for a rate cut by the Fed which is going to give the Euro the upper hand in the medium term.