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16/05/24
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EUR Inches Down After ECB Warns of Potential Financial Instability
On Thursday the euro dropped slightly, and EUR/USD traded at about 1.0860, down 0.20% in the North American session.
The ECB’s Financial Stability Review said it was concerned that financial stability may be jeopardized by the possibility of adverse financial and economic surprises. Geopolitical tensions like in the Middle East and Ukraine could possibly trigger huge market reactions to negative news.
The report also warned that elections in the European Union and the US created more uncertainty. The report however stated that overall threats to the EU’s financial stability had decreased versus the prior report 6 months ago.
There are signs of recovery in the eurozone and that has led to the ECB signaling that it was planning to decrease interest rates in June, although it hasn’t given any clues about rate plans after next month.
Wednesday’s drop in April CPI reversed the trend of inflation moving up and fueled expectations of a rate cut by the Fed. The stock market responded by gaining sharply while the US dollar was generally lower and on Wednesday declined by 0.54% against the euro.
According to the CME FedWatch tool, markets are pricing in a rate cut in September at 74% and a 94% chance of rates being cut before the end of this year.
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