EUR/USD holds positive ground above 1.0850 ahead of ECB rate decision

The EUR/USD pair gains ground around 1.0875 despite the recovery of the US Dollar (USD) during the early Asian session on Thursday. The European Central Bank (ECB) interest rate decision and Press Conference by President Christine Lagarde will take centre stage later on Thursday. 

The ECB is anticipated to cut its interest rates by 25 basis points (bps) at its 6 June meeting, reducing the main refinancing, the marginal lending, and the deposit rate to 4.25%, 4.50%, and 3.75%, respectively. Financial markets have priced in 43 bps of ECB cuts by September and around 60 bps by the end of the year. The divergence between the ECB and the US Federal Reserve (Fed) could exert some selling pressure on the Euro (EUR) and create a headwind for EUR/USD. 

Across the pond, there is growing speculation about the first-rate cuts from the Fed in September as the US economy grew at a slower pace in the first quarter. According to the CME FedWatch tool, traders are now pricing in nearly 70% odds of a Fed rate cut in September, a rise from 54.9% at the beginning of the week. The Fed rate cut expectation is likely to weigh on the Greenback in the near term. 

Nevertheless, the release of the stronger-than-expected US ISM Services Purchasing Managers Index (PMI) data for May has provided some support to the USD. The figure rose to 53.8 in May from the previous reading of 49.4, above the market consensus of 50.8. Investors will shift their attention to the US Nonfarm Payrolls (NFP) data on Friday, which is estimated to add 185K jobs to the US economy in May. The stronger-than-expected US employment data might further lift the USD and cap the upside for EUR/USD.