US Dollar (DXY) Index News: Euro Strength Weighs on Dollar Post-ECB Rate Cut

Euro Rise Pressures U.S. Dollar Index After ECB Rate Cut

The U.S. Dollar Index (DXY) declined on Thursday following a widely anticipated rate cut by the European Central Bank (ECB). The Euro’s strength contributed significantly to the Index’s performance. Concurrently, U.S. Treasury yields showed minimal movement, with investors assessing economic data and future interest rate expectations.

At 12:42 GMT, the U.S. Dollar Index is trading 104.242, down 0.051 or -0.05%.

ECB Rate Cut and Inflation Outlook

The ECB announced a reduction in its key interest rate to 3.75%, down from the previous 4%, despite persistent inflationary pressures within the euro zone. This move was anticipated by markets, marking the first rate cut since September 2019. The ECB cited an updated assessment of inflation and the effectiveness of its monetary policy as reasons for this adjustment.

In updated macroeconomic projections, the ECB staff increased the inflation forecast for 2024 to 2.5% from 2.3% and for 2025 to 2.2% from 2%. The 2026 forecast remains steady at 1.9%. Although markets had fully priced in the 25 basis point cut, there is only one further reduction expected this year, with economists predicting up to two more cuts over the period.

Impact on U.S. Treasury Yields

U.S. Treasury yields remained flat-to-lower as investors processed recent economic data and looked forward to the upcoming May jobs report. The ADP report released earlier in the week showed private payrolls increased by 152,000 in May, falling short of the 175,000 forecast. Additionally, April job openings hit a three-year low at 8.059 million.

Meanwhile, ISM’s purchasing managers index for the services sector rose to 53.8 in May, surpassing the expected 50.7, indicating an expansion. Investors also awaited import and export data, along with initial jobless claims figures, due later on Thursday.

Global Rate Movements

The ECB’s rate cut positions it ahead of the U.S. Federal Reserve in terms of easing monetary policy. ECB President Christine Lagarde emphasized the ECB’s data-dependent approach, distinct from the Fed’s strategy. Canada also cut rates recently, becoming the first G7 nation to do so in this cycle, following similar moves by Sweden and Switzerland.

Market Forecast

Thursday’s ECB rate cut and the subsequent rise in the Euro suggest a bearish outlook for the U.S. Dollar Index in the short term. With the Federal Reserve not expected to cut rates until later in the year, the DXY is likely to remain under pressure. Investors should closely monitor upcoming economic data and central bank communications for further market direction.