EUR/USD Weakens Below 1.0800, Focus on US PMI

In early Asian trading on Monday, the EUR/USD fluctuated and weakened to around 1.0787 due to renewed demand for the U.S. dollar (USD). The Federal Reserve’s (Fed) policy stance of “maintaining higher interest rates for a longer period of time” provided some support for the US dollar and dragged down EUR/USD. Meanwhile, the U.S. Dollar Index (DXY) is currently trading around 104.52, up 0.03% on the day.

The Bureau of Economic Analysis of the U.S. Department of Commerce announced on Friday that the U.S. PCE price index rose 0.3% on a monthly basis in February, in line with expectations. The U.S. PCE price index increased at an annual rate of 2.5%. Data showed that inflationary trends are continuing, which could keep the Federal Reserve on hold until it starts cutting interest rates this year.

The Fed last week kept interest rates unchanged for the fifth consecutive time at 5.25% to 5.5% and still expects to cut interest rates three times by 25 basis points each time before the end of this year. The CME FedWatch tool shows traders are now pricing in a probability of about 55% for the Fed to cut interest rates for the first time in June, down from nearly 70% last week. Last Friday, Federal Reserve Chairman Powell said that recent U.S. inflation data were in line with expectations and the Fed’s interest rate target for this year remained unchanged.

On the other hand, European Central Bank (ECB) Governing Council member Yannis Stonaras said last Sunday that a total of four interest rate cuts are possible in 2024, with a total of 100 basis points (bps) by the end of the year. Meanwhile, European Central Bank policymaker Robert Holzman said Europe may cut interest rates before the United States. Holzman added that a rate cut was likely to come, but that would depend on wage and price conditions in June. Market participants will focus on the U.S. ISM manufacturing purchasing managers’ index released on Monday, which is expected to rise to 48.4 in March from the previous reading of 47.8. The German Consumer Price Index (CPI) will be released on Tuesday.

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