Monthly Wrap: EUR fluctuates as ECB interest rate cut looms 

Key takeaways: 

• ECB rate cut expectations weigh on euro 

• Positive Eurozone data offsets the downside 

• EUR monthly lows: £0.84, $1.07, AU$1.62, NZ$1.75, C$1.46 

• EUR monthly highs: £0.86, $1.09, AU$1.63, NZ$1.79, C$1.48 

The euro was muted at the beginning of May, trading mostly sideways. This limited movement came as positive Eurozone economic data was offset by growing bets on a June interest rate cut from the European Central Bank (ECB). 

As the month progressed, the euro’s negative correlation with the US dollar helped support EUR exchange rates as USD faced selling pressure. 

In addition, more upbeat data aided the euro. Economic sentiment in Germany rose to its highest level in over two years, while private sector activity in the Eurozone hit a one-year high. 

As the ECB’s June rate decision approached, dovish comments from several policymakers put some pressure on the common currency. 

However, hotter-than-forecast Eurozone inflation at the very end of the month boosted EUR. The consumer price index for May showed that both headline and core inflation accelerated more than expected, casting doubt on future rate cuts from the ECB. 

Overall, the common currency fluctuated, gaining against its weaker peers but stumbling elsewhere. 

Looking forward, the spotlight falls on the ECB’s policy announcement later this week. While an expected rate cut could dent EUR, any indication that the bank plans to pause before pursuing further cuts could lend the single currency support. 

Beyond the ECB decision, high-impact economic data may drive EUR. 

Germany’s ZEW economic sentiment index for June is currently forecast to tick lower, snapping a ten-month streak of improvements. This could put pressure on the euro. 

The Eurozone’s preliminary PMIs for June could help EUR towards the end of the month, if they show that business activity in the bloc continues to expand.