The EUR/USD pair retreated near 1.0730, ending its three-day uptrend in early European trading on Thursday. Investor sentiment remains cautious amidst growing concerns over political instability in the Eurozone.
The trigger for the Euro’s weakness was the announcement of a snap election in France following a defeat by the far-right National Rally, intensifying fears of political uncertainty across the Eurozone. This development weighed heavily on the Euro (EUR), limiting its upside potential.
Adding to the Euro’s woes is the divergence in monetary policy between the Eurozone and the United States. European Central Bank (ECB) Governing Council member Mario Centeno hinted at further monetary easing as long as inflation trends remain subdued, contrasting with the possibility of rate cuts by the US Federal Reserve (Fed) amid weaker US Retail Sales data.
Despite indications of potential rate cuts by the Fed, the Greenback’s downside may be capped by a hawkish stance from certain Fed officials. Boston Fed President Susan Collins suggested caution regarding inflation reaching the Fed’s 2% target, while Richmond Fed President Thomas Barkin emphasized the need for more economic data before considering rate cuts.
Investors are now awaiting the preliminary Eurozone and US Purchasing Managers Index (PMI) figures for June, scheduled for release on Friday, which could provide further direction to the EUR/USD pair amidst the current market volatility.
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