The euro fizzled out on the ECB's rate cut signals from June, except in the EURUSD duet.

The euro displayed a mixed performance against various majors, as the European Central Bank (ECB) yesterday reiterated signals for a rate cut starting in June. However, EUR/USD strengthened to 1.0955 in light of the depreciation of the US dollar ahead of the release of Nonfarm Payroll (NFP) data later tonight.

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Yesterday's ECB left its benchmark interest rate unchanged but delivered more dovish inflation projections. The ECB lowered its inflation forecast to an average of 2.3% in 2024, 2.0% in 2025, and 1.9% in 2026. Core inflation forecasts also receded to an average of 2.6% in 2024, 2.1% in 2025, and 2.0% in 2026.

"With inflation more likely to fall back to target and economic growth in the euro-zone expected to remain well below potential this year at 0.6%, it is becoming harder for the ECB to justify maintaining the current restrictive monetary policy stance," says Lee Hardman, an analyst at MUFG Ltd.

In the press conference following the rate announcement, ECB President Christine Lagarde revealed that "risks to economic growth remain tilted to the downside", so more evidence is needed before changing monetary policy. At the same time, she stated that the central bank will look at more data in June.

Market participants considered Lagarde to provide a grid for interest rate cuts starting in June. As a result, the euro fell after the event. EUR/CHF, EUR/JPY, and EUR/GBP are still sluggish until trading this Friday (March 8).

EUR/USD only briefly slipped to the 1.0860s but immediately bounced back to the 1.0950s. This most popular forex duo is still perched in that range until the beginning of the European session this Friday, as market participants are wary of the release of US Nonfarm Payroll data in the New York session.

The question is, will the US Federal Reserve start cutting interest rates before or after the ECB? The Fed Chair's testimony signalled the intention to cut interest rates in the next few months, but the top US monetary authority has not mentioned a specific time.

The greenback continues to be weighed down by this uncertainty. If the actual NFP data later tonight is weaker than the consensus estimate, the market may take it as a sign that the Fed could cut rates earlier - and USD risks further weakness. Conversely, EUR/USD is in danger of collapsing if the NFP data improves.