EUR/USD weakens below 1.0750 as political uncertainty in the Eurozone poses downside risks for the Euro

• EUR/USD loses traction around 1.0730 as markets turn cautious early in the American session on Thursday.
• Concerns about political uncertainty in the Eurozone continue to weaken the Euro.
• Fed’s standby mode could boost the dollar despite recent weaker US retail sales data.

The EUR/USD pair weakens near 1.0730, breaking the three-day winning streak during the early European session on Thursday. However, the pair’s upside appears limited as investors are concerned about political uncertainty in the Eurozone. Investors will closely watch the preliminary Eurozone and US Purchasing Managers’ Index (PMI) for June, due to be released on Friday.

The state of caution due to the call of early elections in France after a defeat of the far-right National Rally party increased fear of political uncertainty in the Eurozone and weighed on the Euro (EUR). Furthermore, the divergence in monetary policy between the Eurozone and the US could drag the shared currency down even further. On Wednesday, European Central Bank (ECB) Governing Council member Mario Centeno said the central bank can further ease monetary policy as long as inflation continues to moderate.

Across the Atlantic, the weaker US retail sales report suggested signs of subdued activity among US consumers, bolstering the case for further US Federal Reserve (Fed) rate cuts. ahead this year, which will likely weaken the Dollar in the short term. However, the hawkish tone of several Fed officials could limit the dollar’s decline. Boston Fed President Susan Collins warned Tuesday that it is still too early to say whether inflation is on track toward the Fed’s 2% target. Meanwhile, Richmond Fed President Thomas Barkin , said he needs to wait several more months of economic data before considering cutting the interest rate.