- EUR/USD experiences a slight decline, trading around 1.1325 in the early hours of Thursday’s Asian trading session.
- The U.S. economy contracted by 0.3% in the first quarter, falling short of anticipated growth.
- Inflation figures from key Eurozone economies reinforce market expectations that the European Central Bank (ECB) may persist with its course of rate reductions.
The EUR/USD pair is exhibiting a modest downward trend, hovering near the 1.1325 mark during the initial hours of Asian trading on Thursday. This pressure stems from a resurgence in demand for the U.S. Dollar (USD). The US Dollar Index (DXY), a measure of the dollar’s strength against a basket of currencies, has climbed further, reaching a two-day peak around 99.70. Investors are now keenly awaiting the release of the US ISM Manufacturing Purchasing Managers Index (PMI) report later today. It’s important to note that many financial markets will be closed on May 1st in observance of the Labour Day holiday.
Market participants have slightly tempered their expectations regarding the extent of interest rate cuts by the U.S. Federal Reserve (Fed) this year. This adjustment follows the release of data indicating that the U.S. economy experienced an annualized contraction of 0.3% in the most recent quarter. Despite this contraction, futures markets continue to price in an initial rate cut by the Fed in June. The prevailing expectation is for a total of four quarter-point reductions throughout the year, which would bring the benchmark interest rate down to a range of 3.25%-3.50% by the end of the year. This outlook reflects a delicate balance between concerns about economic slowdown and the persistent need to manage inflationary pressures.
The data, published by the US Commerce Department on Thursday, revealed that the US economy shrank at an annualized rate of 0.3% during the first quarter (Q1) of 2025. This figure underperformed both the anticipated growth of 0.4% and the previous quarter’s expansion of 2.4%. The unexpected contraction has prompted analysts to reassess their growth forecasts for the remainder of the year, with some suggesting that the Fed may need to adopt a more aggressive easing cycle to stimulate economic activity. The report also highlighted a slowdown in consumer spending and business investment, contributing to the overall decline. The GDP figures will be closely scrutinized by policymakers as they weigh the risks of inflation against the need to support economic growth.
