EUR/USD Recovers Strongly as Market Sentiment Improves

• EUR/USD rebounds quickly from 1.0670 as the attractiveness of perceived risky assets improves.
• The US economic outlook appears to be stronger than its peers.
• Weak preliminary Eurozone PMI raises hopes for further ECB rate cuts.

The EUR/USD pair recovers strongly from a weekly low of 1.0670 in the European session on Monday. Major currency pair rebounds as attractiveness of risk-sensitive assets improves amid growing speculation that the Federal Reserve (Fed) will begin cutting interest rates at its September meeting and deliver two rate cuts this year.

S&P 500 futures have posted some gains in the London session. US 10-year Treasury yields remain sluggish near 4.25%. The Dollar Index (DXY), which tracks the value of the Dollar against six major currencies, corrects from the seven-week high of 105.90.

On Friday, the US Dollar (USD) performed strongly after S&P’s preliminary Global PMI report for June showed that overall economic activity expanded surprisingly. Preliminary United States (US) services business activity expanded to a 26-month high of 55.1. The manufacturing PMI rose to a three-month high of 51.7.

Although the US dollar corrects from the seven-month high, its short-term attractiveness has improved. While all major economies failed to meet PMI estimates, the US economy surprisingly expanded at a faster pace than its previous release.

Meanwhile, the Euro delivers a positive performance against its peers in Monday’s session as investors digest political uncertainty in France ahead of the first round of legislative elections scheduled for June 30.

The Euro recovered despite HCOB’s preliminary PMI report for June pointing to a slowdown in the Eurozone economy. Both manufacturing and services PMIs were weaker than expected, which has raised expectations of subsequent rate cuts by the European Central Bank (ECB).