The euro rose modestly in European trading on Thursday against a basket of global currencies and is on track for its first gain in three sessions against the US dollar, benefiting from a softer greenback ahead of the release of the June US employment report.

Following less hawkish comments from European Central Bank President Christine Lagarde and weaker-than-expected eurozone inflation data for June, market expectations for another ECB rate hike this year have declined significantly.

The Price

EUR/USD rose around 0.1% to $1.1388, from an opening level of $1.1377, after touching an intraday low of $1.1372.

The euro ended Wednesday down 0.4% against the dollar, marking its second consecutive daily loss, pressured by Lagardes remarks and weaker European inflation figures.

US dollar

The US Dollar Index fell 0.1% on Thursday and is heading for its first decline in three sessions, reflecting a moderation in the US currency against a basket of major global peers.

Federal Reserve Chair Kevin Warsh said on Wednesday that inflation expectations and price risks have eased in recent weeks, while reaffirming his strong commitment to the central banks 2% inflation target.

The US private sector added fewer jobs than expected in June, while manufacturing activity slowed more sharply than anticipated according to the latest Institute for Supply Management survey.

Those comments and economic releases reduced expectations that the Federal Reserve will raise interest rates at least once more this year. Investors now await the June US employment report later on Thursday, which is being released a day earlier than usual because of Fridays Independence Day holiday in the United States.

According to the CME FedWatch Tool, the probability of the Federal Reserve keeping interest rates unchanged at its July meeting increased from 66% to 71%, while the probability of a 25-basis-point rate hike declined from 34% to 29%.

Markets are also pricing a 15% probability that rates remain unchanged by December, compared with an 85% probability of a 25-basis-point increase by year-end.

Global oil prices

Oil prices fell around 0.5% on Thursday, extending losses for a third consecutive session and hitting their lowest levels in five months as tensions in the Strait of Hormuz continued to ease, allowing more supertankers to move through the vital shipping route.

Lower oil prices help reduce inflation concerns and support expectations that major central banks could keep monetary policy settings unchanged for an extended period this year.

Christine Lagarde

Speaking on Wednesday in Sintra, Portugal, ECB President Christine Lagarde said risks surrounding inflation and economic growth in the eurozone have become more balanced compared with a few weeks ago, largely due to the recent decline in oil prices.

Eurozone inflation

Data released on Wednesday showed headline eurozone consumer prices rose 2.8% year-on-year in June, below market expectations of a 3.0% increase and down from 3.2% in May.

Core consumer prices rose 2.4% annually in June, also below expectations of 2.5%, compared with 2.6% in the previous month.

European interest rates

Following Lagardes comments and the inflation data, money markets sharply reduced expectations for a 25-basis-point ECB rate hike in July, with pricing falling from 30% to just 5%.

Investors now await additional eurozone data on inflation, unemployment, and wage growth to reassess the outlook for ECB policy.

Reports suggest the ECB is considering pausing its policy normalization process in July if energy prices remain near current levels.