EUR/USD Dips Near 1.0840 Amid Middle East Tensions, Focus on Eurozone GDP Data

• The EUR/USD pair records losses as traders exercise caution amid escalating Middle East tensions.
• ECB’s Guindos mentions potential policy easing if inflation aligns with the central bank’s 2.0% target.
• Investors speculate on potential Fed policy easing as inflation signals a slowdown.
• During Monday’s European trading session, EUR/USD descends, nearing 1.0840. The heightened risk-off sentiment, driven by increased geopolitical tensions in the Middle East, prompts traders to favor the US Dollar (USD), creating downward pressure on the EUR/USD pair.

The Euro (EUR) faces downward pressure following the European Central Bank (ECB) interest rate decision on Thursday. The ECB chose to maintain its Main Refinancing Operations Rate at 4.50% and the Deposit Facility Rate at 4.0%. Additionally, ECB governing council member Klaas Knot stated on Sunday that the central bank requires evidence of slowing wage growth in the Eurozone before contemplating interest rate cuts.

However, market expectations for ECB rate cuts have risen, with bets on a 50 basis points (bps) reduction by June and a 140 bps cut by December 2024. On the data front, the quarterly Gross Domestic Product (GDP) for the Eurozone and Germany is scheduled for release on Tuesday.

European Central Bank (ECB) Vice President Luis de Guindos has stated that the ECB will consider cutting interest rates when there is confidence that inflation aligns with the central bank’s 2.0% goal. He highlighted positive developments in inflation recently and indicated that these favorable trends would eventually be reflected in the ECB’s monetary policy.

The US Dollar Index (DXY) maintains stability around 103.50, with subdued 2-year and 10-year US Treasury yields at 4.33% and 4.11%, respectively, at the time of writing. Investors are putting their bets on the speculation that the Federal Reserve (Fed) could implement policy easing as US Core Personal Consumption Expenditures Price Index (PCE) data indicates a cooling off of inflation.

Traders are anticipated to closely monitor crucial economic indicators, especially Tuesday’s releases of the US Housing Price Index and Consumer Confidence figures, to gain additional insights into the market. This scrutiny is expected to intensify following the forthcoming Federal Open Market Committee (FOMC) statement on Wednesday.

EUR/USD: IMPORTANT LEVELS TO WATCH