- EUR/USD maintains its position on market caution surrounding the Fed’s policy decision.
- Euro could receive downward pressure from dovish remarks of ECB members.
- The Upbeat CPI report diminished expectations of a near-term rate cut by the Fed.
EUR/USD floats near 1.0920 during Asian trading hours on Wednesday. The pair encountered volatility on Tuesday, primarily driven by the release of February’s inflation data from Germany and the United States (US). While German figures matched expectations, US inflation numbers exceeded expectations.
The German statistics office “Destatis” reported the Harmonized Index of Consumer Prices (HICP) with a year-over-year consistency at 2.7% in February, in line with expectations. The monthly index also remained unchanged at 0.6%.
ECB Governing Council member Francois Villeroy de Galhau stated that there is a consensus within the European Central Bank to commence lowering interest rates in the spring, given the progress in tackling inflation. Villeroy de Galhau emphasized the ECB’s ability to independently adjust rates, highlighting the institution’s pragmatism regarding rate policy.
Bank of France Governor, Robert Holzmann in an interview with news outlet MNI, said that the ECB is more likely to cut in June than April. But there will be a need to see projections confirmed amid high uncertainty. Pierre Wunsch, Governor of the National Bank of Belgium spoke at a a news conference that the European Central Bank will have to gamble soon with an interest rate cut even though wage inflation and price rises for services are uncomfortably high.
The US Dollar Index (DXY) maintains its position on recent gains, supported by improved US Treasury yields. The US Dollar received a boost from a stronger-than-expected CPI report, diminishing expectations of a near-term rate cut by the Federal Reserve (Fed) and strengthening the Greenback. This dynamic posed a challenge for the EUR/USD pair.
In February, US CPI (YoY) rose by 3.2%, surpassing estimates of 3.1%. The monthly index met expectations at 0.4%, higher than the 0.3% seen previously. US Core CPI rose by 3.8% year-over-year, above the anticipated 3.7% but below the previous 3.9% reading. The month-over-month figure remained steady at 0.4%, compared to the expected 0.3%. Traders are expected to redirect their attention to the upcoming US Core Producer Price Index (PPI) and Retail Sales data scheduled for release on Thursday.
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