ECB interest rate decision and statement key for markets today.

• ECB interest rate decision key release today with the expectation they are going to cut by 25bps.
• Non-Farm payrolls tomorrow will bring USD volatility, potentially breaking us above 1.28 levels.
• EU retail sales expected to show a sharp decrease from the last reading.
• US services PMI showed signs of improvement coming in above expectation.
• US ADP data came in below expectation at 152,000.

US Dollar

In the past few months, Fed officials emphasised the need to hold the rate higher for longer until the central bank gains confidence that inflation is moving toward the Fed’s 2% target. However, the downbeat US May ISM Manufacturing PMI report and weaker Q1  GDP data have triggered the expectation of easing policy from the Fed in September. The markets are now pricing in a nearly 70% chance of a Fed rate cut in September, up from 54.9% at the beginning of the week, according to the CME FedWatch tool. The Institute for Supply Management reported on Wednesday that the US Services PMI improved to 53.8 in May from 49.4 in April. This figure came in better than the estimation of 50.8. ADP data recorded an increase in US private payrolls of 152,000 for May compared with consensus forecasts of around 175,000 while the April increase was revised lower to 188,000 from 192,000.

Euro

EUR exchange rates may face volatility tomorrow with the European Central Bank’s (ECB) latest interest rate decision due for release. While the central bank is widely expected to enact its first interest rate cut, investors will be particularly eager to assess any forward guidance. Should policymakers suggest that more rate cuts are underway in the coming months, the common currency may tumble. Also due for release on Thursday is the Eurozone’s latest retail data. Retail sales are forecast to have declined in April by 0.3%, retreating from March’s 0.8% increase. Confirmation of weak consumer activity may see EUR face additional headwinds, though the ECB’s hotly anticipated monetary update will likely overshadow any wider releases.

British Pound

The UK services sector reported slower growth in May. The UK S&P Global Services PMI reached a six-month low of 52.9 from 55.0 in April, in line with the expectation. Meanwhile, the Composite PMI dropped to a two-month low of 53.0 in May from a one year high of 54.1 in April. Amid the absence of the top-tier UK economic data releases, the GBP/USD pair will be influenced by the USD. Markets are now anticipating the Bank of England will look to make the first interest rate cut in August.

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