During the early European trading hours on Tuesday, the EUR/USD pair is observed trading on a stronger note around 1.0860. As investors navigate through a landscape devoid of key US data releases, attention turns towards speeches from Federal Reserve (Fed) officials, with anticipation mounting ahead of European Central Bank (ECB) President Christine Lagarde’s address and the release of minutes from the recent FOMC meeting scheduled for Wednesday.
The Federal Reserve has expressed confidence in inflation trends, with officials indicating a trajectory towards the 2% target following last week’s US inflation report. Fed Vice Chair Philip Jefferson emphasized on Monday that while it remains premature to ascertain the duration of the recent slowdown in the disinflationary process, he remains vigilant in assessing incoming economic data and the overall outlook. Conversely, Atlanta Fed Vice Chair Michael Barr highlighted that despite disappointing first-quarter inflation data, the Fed is not swayed towards supporting easing monetary policy.
Market sentiment suggests an anticipation of the US central bank maintaining the rate steady at its June meeting. Traders are pricing in a 76% likelihood of a 25 basis points (bps) rate cut by the Fed in September, with expectations of two cuts by the year-end, as indicated by the CME FedWatch Tool.
On the European front, the ECB is poised for potential rate adjustments in its upcoming June meeting. ECB board member Isabel Schnabel hinted at the possibility of a rate cut next month, albeit cautioning against further reductions given the prevailing uncertainty in the economic outlook. Analysts are of the view that the perceived monetary policy divergence between the ECB and Fed could exert pressure on the Euro (EUR), potentially acting as a headwind for the EUR/USD pair.
