At the beginning of the week, the EUR/USD pair demonstrates a confident positive trend. The growth of the single currency is supported by the weakening of the dollar index due to growing fears about a recession.
Last week, EUR/USD traded in a fairly wide range between 1.0359 and 1.0601. Nevertheless, the euro failed to complete the seven-day period in the positive area.
At the end of the week, the single currency sank 0.2% against the dollar. This is the third consecutive weekly decline of the euro.
The main pressure on the EUR/USD pair was exerted by a sharp increase in rates in America. Recall that last Wednesday the US Federal Reserve stepped up its campaign to combat high inflation and for the first time since 1994 raised the figure by 75 bp at once.
Speaking to CBS News on Sunday, Cleveland Fed President Loretta Mester said price pressure in America will not ease overnight.
According to her forecasts, a return to the inflation target of 2% may take at least two years.The official also pointed to another possible increase in interest rates by 75 bp in July.
In her opinion, the central bank will decide to take this step in the event of a sharp growth in the unemployment rate in the United States, which risks rising to 4-4.2%.
Despite a hawkish comment from a Fed spokesman, the dollar index turned lower on Monday morning, helping the EUR/USD rise above 1.0520.
The US currency's weakness is caused by another important statement made the day before. US Treasury Secretary Janet Yellen said yesterday that she expects US economic growth to slow down due to the Fed's aggressive strategy amid continued inflation.
Yellen also predicted that "unacceptably high prices" will continue until the end of 2022. This increases the likelihood that the Fed could shock the markets more than once with a sharp rate hike.
Concerns about a possible slowdown in the US economy are also fueled by a preliminary estimate of the index of business activity in the manufacturing sector for June.
The data will be published on Thursday. Economists now expect the index to decline to 54.7 from the previous value of 55.7.
Also, the eurozone manufacturing PMI will be published this week. The index is forecast to drop to 53.9, down from the previous reading of 54.6.
Analysts warn that the decline in business activity in the EU manufacturing sector is likely to put strong pressure on the EUR/USD pair.
In addition, in the short term, the euro's growth may be limited by the consequences of the defeat of French President Emmanuel Macron in the parliamentary elections.
Yesterday it became known that his coalition won only 245 seats in the National Assembly out of 577 possible votes. Such a result will not allow Macron to continue his reform program without hindrance.
French Finance Minister Bruno Le Maire called the election results a "democratic shock" and Prime Minister Elisabeth Borne said the president's camp would work from Monday to find alliances to avoid political instability in the country.
Also this week, investors will focus on European Central Bank President Christine Lagarde and Fed Chairman Jerome Powell.
Lagarde will make a speech today, and Powell will testify before the Senate and the House of Representatives on Wednesday and Thursday.
These are the key events of the week for the EUR/USD pair to keep an eye on for clear indications.Despite the current strengthening of the euro, most experts are still inclined to believe that the single currency will continue its bearish trend this week.