Daily digest market movers: EUR/USD awaits inflation data
- EUR/USD is trading in the mid 1.0900s as traders await the release of US CPI data for February.
- The Consumer Price Index ex Food and Energy is forecast to moderate to 3.7% YoY – from 3.9% previously, and 0.3% MoM from 0.4% previously.
- The headline CPI figure is forecast to come in at 3.1% YoY, unchanged from the previous month, and at 0.4% MoM from 0.3% in the previous month.
- According to the CME FedWatch Tool, which calculates a market-based expectation of when the Federal Reserve will begin reducing its Fed Funds Rate, the probability of a first cut in March is 4%, in May 31.5%, and the chances of a cut by June are 73.8%.
- EUR/USD saw a volatile end to last week after US Nonfarm Payrolls (NFP) data painted a mixed picture of the US labor market.
- Although the headline NFP figure beat estimates, the previous figure was revised down from 353K to 229K, Average Hourly Earnings – a key factor in inflation – came out lower than expected, and the Unemployment Rate rose from 3.7% to 3.9% when economists had forecast no-change.
- The result weighed on the US Dollar (USD) as it suggested an increased chance the Fed might reduce interest rates to avert a hard landing. This resulted in an upswing for EUR/USD to the 1.0970s.
- The pair failed to sustain the highs, however, as the Euro also weakened on reports that two key figures in the European Central Bank (ECB) had suggested the ECB might need to cut interest rates as soon as April.
- Banque de France President François Villeroy de Galhau and Bundesbank President Dr. Joachim Nagel, both said that a rate cut in the spring might now be warranted.
- This contrasted with the official line delivered by ECB President Christine Lagarde at her press conference after the meeting on Thursday, where she had earmarked June as the month when the ECB would review its policy on interest rates.
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