The EUR/USD price analysis indicates a decline in ECB rate cut expectations.
by Saqib Iqbal
Forex Crunch
The EUR/USD price analysis indicates a decline in ECB rate cut expectations after the central bank upgraded its inflation forecasts. As a result, the euro has extended gains to reach new highs. Meanwhile, market participants waited eagerly for the US monthly employment report, which will guide the outlook for Fed rate cuts.
On Thursday, the European Central Bank lowered borrowing costs by 25-bps as expected. However, the euro rose after the central bank projections revealed an upgrade in the inflation outlook. Policymakers projected inflation at 2.3% this year, compared to the last forecast of 2.1%. As a result, market participants slashed bets for more ECB rate cuts. Currently, traders expect only two more cuts this year.
Furthermore, optimism about Germany’s new spending plans kept the euro in high spirits. A 50 billion euro fund will likely boost growth in the Eurozone. However, it might also lead to a spike in inflation that would cause the ECB to assume a more cautious stance.