Eurozone economic data leaned towards a more hawkish stance from the European Central Bank (ECB) on Monday, with strong PMI figures suggesting continued growth momentum.
Moreover, negotiated wages surprisingly accelerated in the first quarter from 4.5% year-on-year to 4.7%, defying expectations that a potential interest rate cut was on the horizon at a critical juncture in June.
However, the ECB was quick to react to the wage growth data, downplaying the recovery in wage growth in a blog post, attributing the increase to lump-sum payments and predicting wage pressures would slow in 2024.
The ECB has tried to ease concerns about wage growth, but it remains unlikely that rate cuts will be postponed beyond June, even if next week's consumer price index (CPI) data proves stronger than expected. Recent economic data also makes it more likely that the ECB will adopt a more hawkish stance at its June meeting.
All eyes will be on the eurozone agenda on Monday, with comments expected from hawkish ECB members such as Isabelle Schnabel, Maddis Mueller and Joachim Nagel, whose comments could lead to a more hawkish policy tone from June onwards in light of the latest economic data.
The pair is currently challenging the support level at 1.0800 and its performance will depend heavily on the behavior of the US dollar. The US Core Personal Consumption Expenditures (PCE) data, due to be released in a week, is expected to have a bigger impact than the Eurozone CPI data.
However, the possibility of rising eurozone inflation coupled with an optimistic interpretation of recent US inflation data could reignite the bull market in EUR/USD, with a rise to 1.0900 appearing more likely than a fall to 1.0700 in the near term.
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