EUR/USD RECOVERS AS EU’S INFLATION EXCEEDS FORECASTS

• EUR/USD bounces back from weekly lows, lifted by higher-than-expected Eurozone inflation figures.
• European and US yields rise, supporting the euro amid expectations of ECB and Fed rate moves.
• Comments from ECB's Holzmann and Richmond Fed's Barkin influence market sentiment on monetary policy.

The EUR/USD stages a recovery after falling to weekly lows of 1.0795 and climbs back above the 1.0800 figure, trading at 1.0817, up 0.11%. Inflation data from the Eurozone (EU) spurred a leg-up, as data exceeded estimates, while traders awaited the release of US economic data.

The major rebounds after EU’s data exceeds forecasts

EU inflation was revealed in the mid-European session, with figures edging lower but exceeding economists' forecasts. The EU Harmonized Index of Consumer Prices (HICP) rose 2.6% YoY above estimates of 2.5%. Core HICP increased 3.1% YoY, above the consensus of 2.9% but lower than January’s 3.3%.

Consequently, yields in Europe and the US rose, thus providing a tailwind for the EUR/USD. Investors continued to project 90 basis points of rate cuts in 2024, expecting the first rate cut in June. Economists at Nordea and Commerzbank estimate the European Central Bank (ECB) would slash rates gradually, based on the thesis that wage increases loom.

Following the data, ECB Robert Holzmann commented they need to remain attentive to risk to inflation, adding they can’t rush decisions on rates.

Across the pond, the Richmond Fed President Thomas Barkin delivered hawkish remarks, saying, "We’ll see if there are rate cuts this year.” Barkin added that if numbers remain inconsistent, they should take that into consideration, emphasizing that he is in no rush to ease policy.

S&P Global revealed that manufacturing activity in February expanded sharply, with the PMI edging up from 50.7 to 52.2. Later, the Institute for Supply Management (ISM) will report the Manufacturing PMI, expected to aim from 49.1 to 49.5 in February.