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EUR/USD Rebounds to 1.0850 on Improved Sentiment, US Inflation Eyed

The EUR/USD pair recovered to 1.0850 early Monday as risk appetite improves, offsetting the impact of diminished expectations for a June Federal Reserve (Fed) rate cut. S&P 500 futures opened slightly higher, while 10-year US Treasury yields, now near four-month highs at 4.43%, reflect the shift in expectations for rate cuts toward the latter half of the year.

US Dollar Muted, Focus Shifts to CPI

Despite Friday’s strong Nonfarm Payrolls (NFP) data, the US Dollar Index (DXY) retreated slightly to 104.30. Market attention now turns to Wednesday’s release of the US Consumer Price Index (CPI) for March. Annual headline inflation is expected to have risen to 3.4% from February’s 3.2%, while core CPI (excluding volatile food and energy) is forecast to dip slightly to 3.7% from 3.8%.

Impact of CPI Data on Fed Outlook

Robust inflation figures could reduce the likelihood of a June Fed rate cut, while weaker data could reignite speculation for a near-term policy pivot.

Eyes on ECB Rate Decision

The Eurozone’s focus shifts to the European Central Bank’s (ECB) interest rate decision scheduled for Thursday. While the ECB is widely expected to hold its key borrowing rate steady at 4.5%, investors will closely monitor any clues regarding the potential timing for ECB rate cuts.