EUR/USD rebounds to 1.0850 on improving market sentiment and focus on US inflation

• EUR/USD recovers to 1.0850 as market sentiment turns cheerful.
• The ECB is expected to leave the interest rate on its main refinancing operations unchanged at 4.5% on Thursday.
• The next movement of the US Dollar will be guided by the March inflation data in the United States.

The EUR/USD rebounded to 1.0850 in the American session on Monday as the attractiveness of risk assets improved. Market sentiment is positive despite traders cutting bets supporting Federal Reserve (Fed) rate cuts, which were tipped for the June meeting. S&P 500 futures open on a modestly positive note, US 10-year Treasury yields rise to four-month highs near 4.43%, as Fed rate cut expectations have changed for the second half of this year.

For its part, the US Dollar depreciates despite good Non-Farm Payrolls (NFP) data for March, which dents hopes for rate cuts. The US Dollar Index (DXY), which tracks the value of the US dollar against six major currencies, falls slightly to 104.30.

Looking ahead, investors will focus on the US Consumer Price Index (CPI) for March, which is due to be released on Wednesday. Annual headline inflation is expected to have accelerated to 3.4% from 3.2% in February. Over the same period, the core CPI, which strips out food and oil price volatility, is estimated to have fallen slightly to 3.7% from 3.8%.

Strong price pressures could dampen hopes of rate cuts in June, while weak numbers could raise speculation about a Fed pivot toward rate cuts in the same period.

In the Eurozone, investors are focused on the European Central Bank's (ECB) interest rate decision, which will be announced on Thursday. The ECB is expected to keep official interest rates at 4.5%. Meanwhile, investors will focus on clues as to when the ECB will move on to cut rates.