The Euro (EUR) trades on the back foot against the US Dollar (USD) on Monday as investors return after the extended US Independence Day weekend.
At the time of writing, EUR/USD is trading around 1.1421, down 0.12% on the day
Trading conditions remain relatively subdued at the start of the week as markets reassess the monetary policy outlook for both the Federal Reserve (Fed) and the European Central Bank (ECB). Lower Oil prices after last month’s interim US-Iran peace deal have eased inflation concerns, reducing pressure on central banks to tighten monetary policy aggressively. Last week’s weaker-than-expected US Nonfarm Payrolls (NFP) report also lowered expectations of a near-term Fed rate hike.
At the same time, softer-than-expected Eurozone inflation data reduced the likelihood of another ECB rate increase this year. ING’s Chris Turner said, “A September rate hike from the European Central Bank is now priced with less than a 50% probability, but it is too early for the ECB to sound the ‘all-clear’ on inflation, given the risk that core inflation could still edge higher over the coming months.” As inflation remains above both central banks’ targets, monetary policy is likely to remain restrictive until there is clearer evidence that price pressures are moving sustainably back toward the 2% target. According to the CME FedWatch Tool, traders are currently pricing in a 56% probability of a rate hike at the September meeting.