Strong US data sinks Euro

EUR/USD reverses intraday gains and drops to the crucial support of 1.0700 in Tuesday’s early New York session. The Euro fails to hold gains driven by strong Eurozone data against the US Dollar after the United States Bureau of Labor Statistics (BLS) reported a strong growth in the Q1 Employment Cost Index.

The economic data, a leading indicator of wage growth, grew at a robust pace of 1.2% from the estimates of 1.0% and the former reading of 0.9%. This has deepened fears of US inflation remaining stubbornly higher, as strong wage growth leads to robust household spending, which eventually fuels price pressures.

On the Eurozone front, preliminary inflation data for April and Gross Domestic Product (GDP) data for the first quarter have beat the consensus. Annually, the Harmonized Index of Consumer Prices (HICP) rose steadily and met estimates while core HCPI, that excludes food and energy prices, softened on a slower pace.

The Eurozone economy expanded at a stronger rate of 0.3% in the first quarter even though the European Central Bank (ECB) is maintaining its Main Refinancing Operations Rate at historic highs of 4.5%.

The Euro's failure to hold gains after the release of the key economic indicators suggests that investors’ confidence about the ECB pivoting to interest rate cuts from June is intact. Speculation that the ECB will reduce interest rates starting in June remains unabated as a majority of ECB policymakers have also backed a rate-cut move. A few see the rate-cut campaign extending to following meetings this year.