EUR/USD extends the decline to 1.0800 on Fed-ECB divergence

The EUR/USD pair extends the decline around 1.0808 during the early European session on Friday. The recovery of the US Dollar (USD) broadly, backed by the stronger US PMI data drags the major pair lower. The German Gross Domestic Product (GDP) for the first quarter (Q1) is due on Friday. The quarterly GDP is projected to grow 0.2% QoQ, while the annual GDP is estimated to contract 0.2% YoY in Q1. 

The Greenback edges higher on the upbeat US economic data released on Thursday. The US S&P Global flash May Composite Purchasing Managers Index (PMI) climbed to 54.4 in May from 51.3 in April, the highest since April 2022. Meanwhile, the Manufacturing PMI rose to 50.9 in May from 50.0 in April. The Services PMI climbed to 54.8 in May from the previous reading of 51.3. Both figures came in above the market consensus. Additionally, the weekly Initial Jobless Claims for the week ending May 18 dropped to 215K from 223K in the previous week, lower than the estimation of 220K.

Atlanta Fed President Raphael Bostic said on Thursday that the US central bank may need to wait longer to cut interest rates as he still sees upward inflation pressure. His hawkish remarks boost the US Dollar (USD) against the Euro (EUR). 

Across the pond, the growing speculation that the European Central Bank (ECB) will start cutting the interest rate before the Fed exerts some selling pressure on the EUR. The 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. According to LSEG data, financial markets currently priced in a 25 basis point (bps) cut in June.