EUR/USD gets closer to monthly high amid interest rate cut speculations

The EUR/USD pair has reached a monthly high of 1.0800 due to improved market sentiment and the expectation that interest rate cuts from the ECB will be more and start earlier than the Fed.

Financial markets have anticipated that the ECB will reduce interest rates by 70 basis points this year and will start lowering them from the June meeting. On the contrary, the Fed is expected to begin reducing interest rates from September and investors expect the Fed to bring down borrowing rates by 45 basis points by the year-end.

This week, the Euro will be guided by Eurozone Q1 preliminary Gross Domestic Product (GDP) data, which will be published on Wednesday. The Eurostat is expected to report that the economy has grown steadily by 0.3% and 0.4% on a quarterly and an annual basis, respectively. The US Consumer Price Index (CPI) data for April will also be released on Wednesday.

US consumer inflation data will significantly influence market expectations for Federal Reserve rate cuts, which investors are currently anticipating from the September meeting.

Ahead of the US CPI data, investors will focus on the US Producer Price Index (PPI) data for April, which will indicate whether business owners hiked or reduced prices of goods and services at the premises.

The US Dollar Index fell sharply to 105.30 in Monday’s American session, following a significant rise in Initial Jobless Claims for the week ending May 3, dampening investors’ confidence in US labour market strength.