Euro resumes gains ahead of the ECB meeting

Euro rose in European trade on Wednesday against a basket of main currencies, resuming gains against the dollar and approaching three-month highs as the ECB commences its policy meeting. 

The ECB is set to cut interest rates for the first time since 2014 in the first step of monetary easing in Europe, but the process might be slower than previously expected. 

As inflation accelerated once more in Europe in May, pressures continued to mount on European policymakers, and the odds of multiple more rate cuts this year waned. 

Conversely, the odds of at least two Federal Reserve interest rate cuts this year improved after a string of weak US data.

The Price 

The EUR/USD pair rose 0.1% today to $1.0886, with a session-low at $1.0872. 

Euro closed down 0.25% on Tuesday against the dollar, marking the first loss in four days on profit-taking away from three-month highs at $1.0916. 

The ECB 

Later today, the European Central Bank will commence its periodic policy meeting, expected to cut interest rates by 25 basis points. 

The ECB will likely provide fresh clues on the path ahead for monetary policy and interest rates in light of recent inflation data. 

US Rates

Recent data showed US manufacturing shrank again in May, while construction spending fell unexpectedly, indicating a slowdown in US growth.

Following the data, the odds of a September interest rate cut in September rose to 65%, and to 78% in November according to the Fedwatch tool. 

Rate Gap

The US/eurozone interest rate gap currently stands at 100 basis points, the lowest since May 2022, and is expected to expand to 125 basis points this week in favor of the US.