EUR/USD posts modest gains near 1.0850 on stronger PMI, weaker US Dollar

• EUR/USD trades with mild gains near 1.0850 in Monday’s early Asian session.
• The stronger US data and the Fed’s hawkish stance might lift the USD and cap the pair’s upside. 
• ECB’s Cipollone said the time is right for June rate cuts as the recent data moved in the right direction. 

The EUR/USD pair trades in positive territory for the second consecutive day around 1.0850 in Monday’s early Asian session. The stronger-than-expected preliminary Eurozone Purchasing Managers Index (PMI) for May provides some support to the Euro (EUR). However, the chance that the European Central Bank (ECB) will cut interest rates in the upcoming months might cap the upside of the major pair. 

The stronger US economic data and the hawkish comments from US Federal Reserve (Fed) officials might trigger speculation of a delay in the easing cycle this year. Investors have priced in 53% odds of a Fed rate cut in September, down from 64% recorded a week ago, according to the CME FedWatch tool. Investors await the preliminary US Gross Domestic Product (GDP) Annualized for the first quarter (Q1), which is due on Thursday. The GDP number is estimated to grow by 1.5% in Q1 from 1.6% prior. The stronger reading is likely to lift the Greenback in the near term.

On Friday, US Durable Goods Orders increased by 0.7% MoM in April from the downward revised 0.8% in March, stronger than  -0.8% expected. Meanwhile, the University of Michigan Consumer Sentiment Index improved to 69.1 in May from 67.4 in April, better than the estimated 67.5. The UoM five-year inflation expectations eased to 3% from 3.1%.

The ECB policymaker Piero Cipollone said on Sunday that the time is right for an interest rate cut in June as the recent data moved in the right direction. Meanwhile, ECB President Christine Lagarde said that she is “really confident” that Eurozone inflation was under control and an interest-rate cut is probable next month. A lowering of borrowing costs by the ECB in June has been widely expected, and this might weigh on the EUR against its rivals.