EUR/USD recovers on weaker-than-expected US data

EUR/USD broke above the top of its seven-day range early on Wednesday after the Greenback lost favor with traders. The Euro (EUR), meanwhile, maintained its value on the back of growth in the Services sector revealed in Tuesday’s better-than-expected HCOB Eurozone Services PMI data for April. 

In comparison, the PMI indexes from the US fell for both Services and Manufacturing in April, which took investors by surprise and suggested the economy is not coping as well as previously thought under the yoke of relatively high interest rates.

Stubborn price momentum in the services sector in both the US and Europe have delayed the time by which both the Federal Reserve (Fed) and European Central Bank (ECB) are expected to cut interest rates. Whilst ECB officials seem fairly united in wanting to cut the ECB’s base lending rate in June, Fed officials have become increasingly vague about when they might consider cutting interest rates. 

Since the expectation of lower interest rates depreciates a currency, the lack of commitment of Fed officials compared to their ECB colleagues has been the main catalyst behind the US Dollar’s outperformance over recent weeks, and EUR/USD’s bearish momentum.  

The higher-than-expected preliminary Services PMI data in the Eurozone revealed on Tuesday, however, introduces some doubt into confidence that the ECB will in fact go ahead with rate cuts in June. 

On Wednesday, ECB governing council member and Bundesbank President Joachim Nagel reflected this doubt, saying “Services inflation remains high, driven by continued strong wage growth,” and because of this he was not convinced inflation was falling in a sustainable manner and, therefore, could not “pre-commit to a particular rate path.”

It means more weight will be given to the defining data point for the decision, which is – according to the ECB President Christine Lagarde – first quarter Eurozone wage growth data. 

EUR/USD traders will now assess commentary from ECB officials on Wednesday. Meanwhile in the US, Durable Goods data will pad out the portrait of how well “Captain American Economy” is doing when it is released during the US session.