EUR/USD Adjusts to 1.0760 After Four-Day Rally

Key Points

• The EUR/USD pair paused its four-day gain, adjusting to 1.0760.
• Elevated PMI supports the Euro, indicating robust economic activity.
• Upcoming retail sales data and ECB optimism contrast US economic caution.

In recent trading sessions, the EUR/USD pair witnessed a halt in its four-day winning streak during the Asian hours on Tuesday, adjusting to a current trading level of 1.0760. This shift in momentum comes as investors digest various economic indicators and updates from the Eurozone and the United States.

Eurozone PMI Surges, Predicting Robust Economic Activity

Several key economic reports from the Eurozone have influenced the currency’s strength against the US dollar. The Purchasing Managers Index (PMI) showed higher-than-expected results on Monday, which supported the Euro. This strong PMI indicates robust economic activity, suggesting the Eurozone economy is resilient.

Retail sales data expected on Tuesday during the European session could provide further insights into the short-term retail sector performance. This sector contributes about 5% to the Eurozone’s total economic output, so investors are keenly awaiting this data to gauge its impact on the EUR/USD pair.

ECB Eyes 2% Inflation Target, Possible Rate Cuts by June

Philip R. Lane, Chief Economist at the European Central Bank (ECB), expressed optimism that inflation would return to the ECB’s 2% target. Bloomberg reported his comments and reaffirmed them in an interview with El Confidencial. Lane’s views, combined with a consumer prices report indicating easing pressure in the services sector since November, suggest a path toward moderating inflation in the Eurozone. This upbeat outlook could lead to an interest rate cut in June, creating a favourable environment for the Euro.

Fed: High Rates to Temper Growth, Target Inflation

In the United States, Thomas Barkin, Richmond Fed President, stated that higher interest rates are expected to slow economic growth while reducing inflation. He emphasized that the strong labour market allows the Federal Reserve to maintain higher borrowing costs until inflation consistently declines. However, he warned that persistent inflation in housing and services might keep prices elevated.

Softer US Labor Data Spurs EUR/USD Movement

The recent upward adjustment in the US dollar put pressure on the EUR/USD pair, but softer US labour data released last Friday revived hopes for potential interest rate cuts by the Fed in 2024. This encouraged investors, reducing the strength of the US dollar against the Euro. As market narratives unfold, the EUR/USD remains a key indicator reflecting broader sentiment in the Eurozone and the United States.