Euro rose mildly in European trade on Monday against a basket of major rivals, extending recovery for a second day away from a week trough against the dollar, even as the euro continues to face a bearish outlook due to expectations of early interest rate cuts by the ECB.

Conversely, the odds of an early US interest rate cut by the Federal Reserve in June declines. 

EUR/USD

EUR/USD rose 0.1% to 1.0897, with a session-low at 1.0880, after rising 0.1% on Friday, after plumbing a one-week trough at 1.0873. 

Euro lost 0.4% against the dollar last week, the first weekly loss in a month on renewed concerns about the US-Europe widening interest rate gap. 

Bearish Outlook

The SEB banking group said in a research memo that the time is prime for the EUR/USD pair to decline in upcoming weeks.

The group’s analysts are pointing to the conditions supporting an earlier interest rate cut in Europe compared to the US as a basis for their prediction. 

The analysts believe that a breach of the recent range will underpin the dollar throughout the spring, with the group now expecting the EUR/USD to hit 1.07 in about a month before rebounding back to 1.10 in the fourth quarter.  

As the Federal Reserve prepares to launch its own policy easing, likely from June, it’s expected that the euro will gain momentum on the dollar and recoup all of its recent losses. 

Yen declined in European trade on Monday against a basket of major rivals, extending gains against the dollar for the fifth straight session and plumbing a two-week trough as the Bank of Japan’s policy meeting commences. 

Following the recent Japanese wages negotiations, which led to a surge in average wages, speculations rose that the BOJ will soon announce an end to negative rates. 

The BOJ is expected to raise interest rates for the first time in 17 years either this week or in April and start policy normalization. 

USD/JPY

USD/JPY rose 0.3% to 149.33, the highest since March 3, with a session-low at 148.90, after closing 0.5% on Friday, the fourth loss in a row as US treasury yields rose.

Yen fell 1.3% last week against the dollar, the first weekly loss in three weeks on speculation that the Federal Reserve will maintain interest rates at high levels for an extended duration. 

BOJ

Today the Bank of Japan is holding its two-day policy meeting with decisions expected tomorrow. 

There’s a 39% chance that the BOJ will raise interest rates this year, and a 60% chance it will cancel its control of government bond yields. 

Reuters reported that the BOJ is seriously preparing to exit current ultra easy monetary policies since Kazuo Ueda took his post as the new BOJ governor in late 2023. 

It’s expected the BOJ will raise rates to zero percent by April following wages negotiations that led average wages to surge to 33% year highs. 

However, it’s still expected to keep purchasing government bonds and maintain its overall supportive monetary structure of the economy. 

Palladium prices rose on Friday as the dollar trades flat against major rivals, while traders assess demand from the automotive sector. 

Usages and Applications 

The automotive industry is the major consumer of palladium, specifically to process exhaust fumes in catalytic converters. 

Palladium recently lost some of its sheen due to increased demand on EV cars worldwide. 

However, a supporting point for palladium is the decreasing share of diesel cars in the market compared to gasoline cars, which rely more on palladium converters. 

Palladium also plays an important role in the hydrogen energy industry, as palladium can be used to catalyze chemical processes in fuel cells. 

The addition of palladium to fuel cell systems improves performance and increases stability and positive activity. 

Price Factors

Dollar is a major factor determining palladium prices, with the dollar index declining to 103.4 as of 13:45 GMT, with a session-high at 103.4, and a low at 103.3. 

Recent data showed the US labor and real GDP markets surging strongly in the first quarter of the year, underpinning the greenback. 

On trading, palladium futures due in June rose 1.4% to $1093.5 an ounce as of 13:46 GMT. 

Dollar rose in European trade on Friday against a basket of major rivals, extending gains for the second day and hitting a week high and on track for the biggest weekly profit in two months following hot US inflation data.

US inflation data released this week showcased the ongoing inflationary pressures on Fed policymakers and bolstered the case for maintaining interest rates at current levels for an extended duration this year.

The Index

The dollar index rose 0.1% to 103.49, the highest in a week, with a session-low at 103.31, after closing up 0.75% yesterday, the largest profit since February 2, following US producer prices and unemployment claims data. 

Weekly Trades

The dollar index is down 0.7% so far today, on track for the first weekly profit in a month, and the largest since January.

Scorching US Inflation Data 

Recent data showed US consumer prices rose 3.2% y/y in February, above estimates of 3.1%.

Core prices rose 3.8% in February, above estimates of 3.7%. 

Producer prices rose 1.6% in February, up from 1% in January, marking the fastest increase since September 2023. 

On a monthly basis, producer prices rose 0.6% last month, up from 0.3% in January. 

US Rate Prospects

Following the data, the odds for a 0.25% Fed interest rate cut in May fell to 12%, while the odds for such a cut in June fell to 60%. 

Traders are still pricing in 75 basis points of interest rate cuts by the Federal Reserve this year.