EUR/USD holds below 1.0700, investors await US CPI, Eurozone GDP data

• EUR/USD gains traction for the second consecutive day
• Fed Chair Powell said that if it’s appropriate to tighten policy further, the central bank will not hesitate to do so.
• European Commission will release Economic Growth Forecasts later on Monday, with downward revisions to 2024 growth expected.
• The US Consumer Price Index (CPI), Eurozone Gross Domestic Products will be in the spotlight this week.

The EUR/USD pair kicks off the week in a positive mood during the early Asian trading hours on Monday. The rebound of the pair is supported by the consolidation mood of the US Dollar (USD). The pair bounces off last week’s low of 1.0656 and remains capped under the 1.0700 barrier. The major pair currently trades around 1.0690, gaining 0.04% on the day.

The University of Michigan Consumer Sentiment index declined from 60.4 in November to 63.7 in October. The US 12-month inflation expectations rose to 4.4% from 4.2%, while 5-year expectations surged to 3.2% from 3.0%. The key event will be the publication of October’s CPI report. If the report shows stronger than the estimated reading, this could raise the possibility of a Fed rate hike again in December. Last week, the Federal Reserve (Fed) Chair Jerome Powell said that if it becomes appropriate to tighten policy further, the central bank will not hesitate to do so.

On the other hand, the European Commission will release Economic Growth Forecasts later on Monday, with downward revisions to 2024 growth expected. The preliminary Eurozone Gross Domestic Product for the third quarter (Q3) will be due. The quarterly figures are estimated to contract by 0.1% and the annual figure is anticipated to grow by 0.1%. Apart from this, several ECB speakers, including Lagarde, De Guindos, Lane, and Villeroy will likely reiterate that any discussion of rate cuts is premature.

The International Monetary Fund said last week that rapid wage growth in the eurozone might keep inflation elevated for longer, and the European Central Bank should retain interest rates at or around record highs into next year to alleviate pricing pressures. However, the market anticipates a rate cut, maybe as early as April, with a total of 90 basis points (bps) of cuts priced in by the end of next year.