Euro trims losses on ECB tightening hopes, mild US Dollar weakness

The Euro (EUR) ticks up for the second consecutive day against the US Dollar (USD) on Tuesday to pare some of last week’s losses. The pair is trading at 1.1555, session highs at the time of writing, up from 1.1500 lows on Monday, favoured by hopes that the European Central Bank (ECB) will hike rates, while a mild risk appetite is weighing on the safe-haven US Dollar

Data released earlier on Tuesday showed that German Industrial Production bounced to 0.4% growth in April, in line with market consensus, following an upwardly revised 0.1% contraction in March and a 0.5% fall in February. At the same time, German Trade Balance data showed a EUR 14.5 billion surplus in April, down from EUR 14.7 billion in March and undershooting market expectations of EUR 15 billion.

The ECB is expected to hike rates on Thursday

The Euro is drawing support from a generalised view that the ECB will tighten its monetary policy at Thursday’s meeting. The ECB is widely expected to hike its deposit rate by 25 basis points to 2.25% amid high inflation and hint at a pause, as the sluggish Eurozone will deter the bank from adopting an aggressive monetary policy.

On the Geopolitical front, an Israeli attack on the Lebanese city of Tyre has killed eight people, despite US President Donald Trump’s warning to Netanyahu to halt the hostilities. Rarliewr on the day Trump showed optimism about reaching a deal with Tehran, which has triggered a moderate risk-on mood in financial markets.

An improved market sentiment is weighing on demand for the safe-haven US Dollar, although downside attempts remain limited. Solid US macroeconomic data released last week have boosted hopes of Federal Reserve rate hikes later in the year, and investors are now awaiting the release of Wednesday’s US Consumer Price Index (CPI) data for a better assessment of the Fed’s forward path.