Ella 
In early Asian trading on Friday, EUR/USD was trading near 1.0728, with a bearish trend. The U.S. dollar recovered slightly, weighing on EUR/USD, as speculation grew about a rate cut by the Federal Reserve in September. On Thursday, the European Central Bank (ECB) kept interest rates at a record high as expected and opened the door to a rate cut in June. Investors are awaiting German March inflation data and preliminary U.S. Michigan consumer sentiment index due on Friday.
A data measure of U.S. wholesale inflation in March was lower than expected, raising hopes that the Federal Reserve will cut interest rates this year. The U.S. producer price index (PPI) rose by 0.2% on a monthly basis in March, compared with expectations of 0.3%. During the same period, the producer price index increased at an annual rate of 2.1%, the largest increase since April 2023. Separately, data released by the U.S. Bureau of Labor Statistics on Thursday showed that the core producer price index, which excludes food and energy, increased at an annual rate of 2.4%, beating market expectations.
The report had little impact on the market. Investors now believe the Fed will cut interest rates only twice this year, most likely starting in September, according to the CME FedWatch tool. Participants noted uncertainty about their expectations for elevated inflation, while recent data have not bolstered their confidence that inflation will continue to fall to 2 percent,” minutes of the Fed meeting released on Wednesday showed.
In the euro zone, the European Central Bank held its key interest rate at 4.0% at its fifth consecutive meeting on Thursday. The Fed has also signaled an imminent rate cut, although its next steps remain uncertain. Data from the London Stock Exchange Group (LSEG) shows that the market has priced in a 25 basis point interest rate cut by the European Central Bank in June. Increasing investor speculation that the European Central Bank will cut interest rates before the Federal Reserve has put some selling pressure on the euro (EUR) and has become a key factor in “suppressing” EUR/USD.
