EUR/USD Trades Cautiously, Awaiting ECB Rate Decision & US Data

EUR/USD struggled to hold above 1.0850 during Monday’s European session. The pair came under pressure as the revised HCOB Manufacturing Purchasing Managers’ Index (PMI) showed factory data slightly down to 47.3 from the consensus and initial reading of 47.4.

This week, the pair is expected to remain volatile as investors turn their focus to the European Central Bank (ECB) rate decision, which will be announced on Thursday.

Financial markets expect the ECB to cut its key main refinancing operation rate by 25 basis points (bps) to 4.25%. As a result, market participants remain more interested in clues on the path of rate cuts after the June meeting.

Market expectations for the ECB to continue cutting interest rates at its July meeting were tempered as the preliminary report on the Eurozone Harmonized Index of Consumer Prices (HICP) for May showed that the road to 2% inflation is expected to remain bumpy.

Eurostat, the European Union’s statistical office, reported on Friday that the eurozone’s initial annual reading of HICP for May increased faster than expected. The headline HICP rose 2.6%, higher than the 2.5% forecast and the 2.4% reading in April. Over the same period, the core HICP data (which strips out volatile factors such as food, energy, alcohol and tobacco) accelerated to 2.9% from the expected 2.8% and the previous reading of 2.7%.

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