EUR/USD trades in the upper 1.0800s as the week concludes, marking a downward shift from its recent range in the 1.0900s. This change in trajectory followed Thursday’s release of US macro data, which tempered expectations of early interest-rate cuts by the Federal Reserve (Fed).
Thursday’s data revealed that the US Producer Price Index (PPI) unexpectedly rose by 1.6% year-over-year in February, surpassing January’s 1.0% increase and consensus estimates of 1.1%.
Additionally, lower-than-expected Initial Jobless Claims and a moderate increase in Retail Sales to 0.6% from a revised-down -1.1% previously indicated a stronger-than-expected US economy. This suggests that the Fed may need to maintain higher interest rates for a longer duration, which is generally negative for EUR/USD but positive for the US Dollar (USD) as higher rates attract more foreign capital inflows.
On the same day, several European Central Bank (ECB) policymakers, including Christine Lagarde, shared their views on potential interest-rate cuts. Lagarde stated that the Governing Council would review interest rates in June, but Francois Villeroy de Galhau hinted at a possible rate cut as early as April, creating speculation of two camps forming within the ECB, with one favoring a spring cut and the other a summer cut.
In the technical analysis, EUR/USD’s correction back to the 1.0800s after peaking at 1.0981 on March 8 raises questions about the sustainability of its short-term uptrend.
Looking ahead, Friday’s economic calendar is relatively quiet, with the US Empire State Manufacturing Index, February Industrial Production figures, and the preliminary Michigan Consumer Sentiment Index being the main events.
For the Euro, Bundesbank President Joachim Nagel is scheduled to speak in Frankfurt, Germany, potentially offering insights into ECB policy. ECB chief economist and board member Philip Lane will also speak later in the day.
Overall, the recent developments suggest a potential shift in market sentiment regarding interest rates, which could impact the EUR/USD pair in the near term.