Euro Holds Gains After ECB Rate Cut, Attention turns to US Non-Farm Payrolls

ECB Decision: The euro maintained its position above $1.0880 after the European Central Bank (ECB) delivered a well-anticipated rate cut of 25 basis points. However, the ECB’s staff projections indicate that inflation is likely to remain above the target of 2% until late 2025, tempering enthusiasm for further easing.

Inflation and Growth Revisions Updated projections revealed upward revisions to inflation and growth for 2024. The medium-term inflation measure for 2026 remained at 1.9%, anchoring expectations. GDP for 2024 was revised from 0.6% to 0.9%, signalling potential economic recovery after five quarters of stagnation.

Market Reaction: Financial markets reacted by scaling back expectations for future rate cuts, reflecting the ECB’s revised economic forecasts. This shift, combined with hotter-than-expected US initial jobless claims data, contributed to a rise in the EUR/USD pair.

US Employment Data: Recent data indicated a softening labour market with the April Job Openings and Labor Turnover Survey (JOLTS) showing 8.059 million job openings, down from 8.35 million in March. The ADP report for May indicated 152K new private sector jobs, below the expected 173K, while Initial Jobless Claims increased to 229K, above the anticipated 220K.

Weaker US Macro Data Fuels Rate Cut Speculation A series of disappointing economic data has fuelled speculation that the Fed might implement two quarter-point rate cuts this year. Investors are anticipating a potentially softer non-farm payrolls report later in the day, with job growth possibly falling below the forecast of 185,000.

Markets Price in Potential Fed Cuts: While the Federal Open Market Committee (FOMC) is not expected to make any changes at its next meeting, markets are currently pricing in a total of 50 basis points in rate cuts by the end of December. September is seen as the most likely timeframe for the first cut.

US Jobs Report in Focus: The upcoming NFP report could significantly influence the Federal Reserve’s decision on interest rates at their next meeting. A stronger-than-expected report may delay interest rate cuts, while a disappointing report could increase the likelihood of a rate cut in September, currently priced in by the market at nearly 70%.

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