The EUR/USD pair demonstrated resilience, bouncing back from a five-month low of 1.0622, and stabilizing around 1.0660 during the early European trading hours on Monday. This resurgence follows a period of downward pressure attributed to contrasting monetary policy outlooks from the European Central Bank (ECB) and the Federal Reserve (Fed).
Investor attention remains focused on key data releases, including Eurozone Industrial Production figures for March, slated for release today. Additionally, anticipation mounts for the unveiling of US Retail Sales data later in the day.
The ECB’s stance on potential policy adjustments underscores concerns over decelerating underlying inflation. The possibility of a policy rate reduction in June looms if inflationary trends persist. Conversely, the Fed appears inclined towards reevaluating its accommodative monetary policies amidst robust US economic indicators and persistent inflationary pressures. Recent data revealed a notable surge in core producer inflation in the US during March, exceeding expectations.
Against a backdrop of heightened geopolitical tensions, traders proceed cautiously, considering potential safe-haven movements towards the US Dollar (USD). The escalation of the Israel-Iran conflict, characterized by Iran’s recent attack on Israeli military installations, adds to market apprehensions. Israel’s successful interception of most incoming projectiles, as reported by Reuters, underscores the geopolitical risks influencing market sentiment.
Gediminas Šimkus, a member of the ECB Governing Council, conveyed a nuanced outlook on monetary policy, suggesting a greater than 50% likelihood of multiple rate cuts this year. However, Šimkus hinted at the possibility of geopolitical events, such as further escalation in the Israel-Iran conflict, potentially delaying the first rate cut to July from June, as reported by Reuters.
