- EUR/USD rebounds sharply from the crucial support of 1.0700 after the Eurostat reported that inflation remained hotter than expected in April and Q1 GDP outperformed estimates. Eurozone’s headline inflation rose in line with the consensus and the prior reading of 2.4%. The annual core inflation, which strips off volatile food and energy prices, grew at a higher pace of 2.7% from the estimates of 2.6% but decelerated from the prior reading of 2.9%.
- Monthly headline and core inflation rose by 0.6% and 0.7%, respectively. The Eurozone economy expanded at a strong rate of 0.3% in Q1, beating expectations of 0.1% and a stagnant performance in the last quarter of 2023. Annually, the Q1 GDP growth rate was double the expectations of 0.2%.
- Stronger-than-expected preliminary inflation for April, combined with robust Q1 GDP growth, is not expected to significantly impact expectations of rate cuts by the European Central Bank, which financial markets are expected to start in June.
- On the other side of the Atlantic, The US Dollar rebounds sharply as the market sentiment remains risk-off ahead of the Federal Reserve’s monetary policy decision, which will be announced on Wednesday. The US Dollar Index (DXY) recovers from 105.50 but remains inside two-week’s trading range of 105.40-106.50. The Fed is expected to keep interest rates unchanged in the range of 5.25%-5.50% for the sixth time in a row as price pressures in the United States remain stubbornly higher due to strong wage growth.
- The Fed will likely endorse keeping interest rates on hold at their current level for longer until it gets greater confidence that inflation will sustainably return to the desired rate of 2% target. Investors would look for whether the Fed will remain committed to its three rate-cut projections for this year provided in March’s dot plot.
- Apart from Wednesday’s Fed policy decision, investors will also focus on the US ADP Employment Change and the ISM Manufacturing Purchasing Managers Index (PMI) report for April.
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