- EUR/USD weakens to 1.0770 in Monday’s early Asian session.
- The high-for-longer US rate narrative and, the Fed’s hawkish comments lift the Greenback.
- The ECB policymakers noted last month that they will likely be in a position to cut interest rates in June.
The EUR/USD pair trades on a softer note around 1.0770 during the early Asian trading hours on Monday. Investors turn to cautious mode and prefer to wait on the sidelines ahead of the US key economic data this week. The final reading of the US Consumer Price Index (CPI) for April will take center stage on Wednesday, which is expected to show an increase of 3.4% YoY.
A jump in consumer inflation expectations has raised the expectation that the Federal Reserve might hold a rate for longer. The inflation outlook registered the highest level since November 2023, with the one-year inflation outlook surging to 3.5% and the five-year outlook rising to 3.1%. Dallas Fed President Lorie Logan said that there are upside risks to inflation, adding it is too soon to be cutting interest rates.
Meanwhile, Minneapolis Fed President Neel Kashkari stated that he's in a "wait-and-see mode” and there is a "high" bar to concluding that higher rates are needed to cool inflation. These hawkish remarks from the Fed officials boost the Greenback and weigh on the major pair.
On the other hand, the European Central Bank (ECB) policymakers noted last month that they will likely be in a position to cut interest rates in June as inflation in the Eurozone is on track to ease back to 2% next year, according to the account of their April meeting. Markets expect the ECB to cut its interest rate on June 6 despite the rate path beyond that is uncertain. The growing speculation of an ECB rate cut and a possible delay by the US Fed to its rate cuts is likely to cap the upside of the Euro (EUR) and create a headwind for the EUR/USD pair in the near term.
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