Danske Bank suggests that a June rate hike from the Fed is unlikely after Fed Chair Jerome Powell hinted at a pause in the June meeting. Powell pointed out "uncertainty about the lagged effects of our tightening so far" and "the extent of credit tightening from recent banking stresses," indicating that the base scenario is a pause. Powell's remarks marked a notable shift from Fed comments last week, and markets reacted accordingly, with the probability for a June hike declining to around 15% from 35-40%.

The bank’s focus this week will be on preliminary PMIs for May on Tuesday, FOMC minutes on Wednesday, and US PCE inflation on Friday. Additionally, US President Joe Biden and House Minority Leader Kevin McCarthy will resume debt ceiling negotiations later today.

Danske maintains a bearish outlook on EUR/USD over the strategic horizon, as it believes that the USD fundamentally looks attractive. In the near term, the cross looks to be trading within a range, although the bank suggests risks are skewed to the downside.