The Euro held close to six-week highs against the Dollar ahead of a widely anticipated interest rate cut by the European Central Bank (ECB) on Thursday, while the greenback made a modest rebound after earlier losses triggered by fresh concerns over sluggish growth and persistent inflation.

Wednesday’s data revealed that the US services sector shrank in May for the first time in nearly a year, alongside signs of a cooling labour market. This prompted a rally in Treasury markets and boosted expectations for additional rate cuts by the Federal Reserve later this year.

“For most of the week, we've been staying in relatively tight ranges... there was Dollar softness yesterday after the downside surprise in the ISM services data, but slightly calmer heads are prevailing this morning,” stated Michael Brown, senior research strategist at Pepperstone.

The Dollar rose 0.37% against the Yen to 143.34 on Thursday and gained 0.25% against the Swiss Franc, trading at 0.82025 Francs, Reuters reports.

Meanwhile, the Euro held steady at $1.1416, remaining close to the six-week high it reached earlier in the week. The British Pound was also unchanged, trading at $1.3565.

The European Central Bank is expected to reduce its benchmark interest rate by 25 basis points, marking the eighth cut in the past 13 months as inflation continues to decline from its post-pandemic peaks.

The move is aimed at supporting the eurozone economy, which was already under strain before being further impacted by the unpredictable economic and trade policies of US President Donald Trump’s administration.

According to analysts at Commerzbank, the ECB may slightly revise down its growth and inflation projections for 2025 and could also address the stronger Euro, noting its disinflationary impact.

Data released on Tuesday showed that eurozone inflation had dipped below the ECB's 2% target, reinforcing expectations of an interest rate cut.

In addition, Friday’s monthly US payrolls report will provide a clearer picture of the labour market, following Wednesday’s data from payroll processor ADP, which showed that private sector job growth in May was significantly weaker than anticipated.

The broader US employment report due Friday is projected to show an increase of 130,000 non-farm jobs in May, down from 177,000 in April, according to a Reuters poll of economists. The unemployment rate is expected to remain unchanged at 4.2%.

“May's payrolls data tomorrow will be important to see if investor concerns are valid or overdone. A soft labour market report is likely to result in outsized falls in the US Dollar,” according to Mansoor Mohi-uddin, chief economist at Bank of Singapore.

Markets have been unsettled since Trump announced a series of global tariffs on 2^nd April, then paused some and introduced new ones, prompting investors to seek alternatives to US assets.

Concerns persist over US trade negotiations, with little progress made toward agreements ahead of the early July deadline.