A surge in positive sentiment that gripped markets at the end of last week seems to have started to wane today. Markets have fully priced in Powell's statement about a possible soft landing for the US economy and the likelihood of a pause in the Fed's interest-rate increases following an expected hike by 1.0% to 2.0% by autumn, which was announced at the May meeting.
This week, the focus of market players will be on today's data on consumer inflation in the euro area and employment figures in the US, including the ADP National Employment Report to be released on Wednesday and data from the Department of Labor. Let's start with EU statistics.
According to forecasts, the consumer price index in the euro area is expected to stand at around 0.6% in May, which will correspond to the April value. On an annual basis, the indicator is anticipated to increase to 7.7% from 7.4%.
How will these upcoming figures affect the euro?
Given that ECB President Christine Lagarde made it clear that the central bank could raise interest rates by autumn for the first time after many years, monthly inflation growth could support the euro.
However, the European currency is unlikely to gain strong upside momentum against the US dollar as demand for the euro is expected to decrease amid the end of a rally in stock markets. Besides, a sharp rise in US Treasury yields may help the dollar gain value against the single currency.
Indeed, the dollar has been trading under pressure from a possible pause in the Fed's interest-rate hikes lately. This news has been acting as a driving force behind the euro. However, if today's statistics show even a slight decrease in the monthly CPI, the ECB will probably tone down its rhetoric over potential rate increases.
Thus, if inflation sinks, the euro will most likely come under pressure this week. Upbeat jobs data in the US from both the ADP and the Department of Labor will support the greenback, albeit temporarily.
In other words, it will be difficult for investors to resume long positions on the euro/dollar pair if the European Central Bank does not specify the timing of an interest-rate hike cycle.
