EUR/USD attempts to recover after dovish remarks by ECB officials

After declining in response to hawkish sentiment surrounding the US Fed, the EUR/USD pair is making an attempt to rebound and is currently trading at 1.0789. Stronger inflation data may cause Fed’s Waller support the postponement of the interest rate cuts.

ECB’s François Villeroy de Galhau stated that the bank can achieve its 2% inflation target. The EUR/USD pair resumed its negative trend for the fourth day in a row early in the day, before marginally recovering. This decline was fueled by a stronger US dollar, which benefited from market expectations of prolonged higher for longer stance as well as the hawkish atmosphere surrounding the Fed.

The United States’ recent robust economic data lends credence to this shift in mindset. During Friday’s Asian trading hours, the EUR/USD pair dipped to about 1.0780 before somewhat rebounding.

Early in the day, hawkish remarks made by a Federal Reserve member helped to strengthen the US Dollar Index and get it closer to 104.60. Given the high inflation data, Fed Governor Christopher Waller may postpone interest rate reductions, according to his remarks on Wednesday. For more information and direction, investors will now be watching for Friday’s US Personal Consumption Expenditures (PCE) report, which is the Fed’s favoured inflation indicator. However, as of this writing, the US Dollar Index has declined and is currently trading at 104.486, down -0.05%.

The US Gross Domestic Product (GDP) Annualized increased by 3.4% in the fourth quarter of 2023, above the 3.2% increase that the market had predicted. In keeping with forecasts for Q4, the US Gross Domestic Product Price Index increased by 1.7% without fluctuating.

US Core Personal Consumption Expenditures (QoQ) for the same time were 2.0%, which was marginally less than the 2.1% reading that was anticipated and the prior reading. In addition, US initial claims for unemployment benefits dropped to 210,000 in the week ending March 22 instead of rising to 215,000 from the previous 212,000, as predicted.

Following dovish comments made by European Central Bank (ECB) policymaker Francois Villeroy, the Euro faces challenges. While core inflation has decreased quickly, Villeroy pointed out that it is still high. He said that the 2% inflation target set by the ECB is doable, but he also cautioned about the growing risks to the downside should the ECB decide not to lower interest rates.

On Thursday, Fabio Panetta, a member of the ECB executive board, also said that “the conditions to start easing monetary policy are materializing.” He emphasized how demand is being suppressed by restrictive measures, which is causing inflation to rapidly decline. Additionally, Panetta stated that there are fewer threats to price stability.