• EUR/USD jumps above 1.0900 as the US Dollar weakens due to firm Fed rate-cut prospects.
• Traders raise Fed rate-cut bets amid fears of slower US economic growth.
• The ECB is due to announce June’s monetary policy decision on Thursday.

EUR/USD holds strength slightly above the round-level resistance of 1.0900 in Tuesday’s European session. Sheer strength in the major currency pair is driven by a sharp sell-off in the US Dollar (USD). 

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slips to an almost two-month low near the crucial support of 104.00 as a weak United States (US) ISM Manufacturing PMI report for May deepens fears of slowing economic growth and eases risks of persistent inflation.

The report showed that the Manufacturing PMI, which gauges the health of factory activity, contracted for the second straight month. The economic data came in at 48.7, lower than the consensus of 49.6 and the prior reading of 49.2. Apart from that, the New Orders Index, which reflects the demand outlook, fell to 45.4 from the former reading of 49.1, suggesting sluggishness in the economy in the midst of the second quarter as the Federal Reserve (Fed) maintains a restrictive monetary policy.

Financial markets were already worried about slowing US economic strength as the Q1 Gross Domestic Product (GDP) growth was downwardly revised to 1.3% from the preliminary estimates of 1.6%.

Weak US factory data has boosted market expectations that the Fed will begin reducing interest rates from the September meeting. The CME FedWatch tool shows that the probability of a rate cut in the September meeting has increased to 60% from 45.8% a week ago.

Meanwhile, investors await the US ISM Services PMI, ADP Employment Change and the Nonfarm Payrolls (NFP) report for May and JOLTS Job Openings data for April. This slew of economic data will influence market speculation for Fed rate cuts in September.