EUR/USD declines following US economic data

The EUR/USD pair has fallen to the lower 1.0900s following the release of US macroeconomic data, which indicates continued inflationary pressures in the economy. The pair is trading at 1.0902, down 0.42% at the time of writing.

EUR/USD Reacts to Economic Data

Factory gate prices rose more than expected in February, while retail sales data increased but failed to meet estimates.

Initial Jobless Claims also undershot expectations and came out a little lower than previously. The data has toned expectations of when the Federal Reserve (Fed) will start cutting interest rates, a key driver for the US dollar.

It now seems even more likely policymakers will want to keep interest rates higher for longer until they see inflation push lower.

Producer Price Index ex Food and Energy (Core PPI) rose by 2.0% in February, not the 1.9% forecast, and the same as the previous 2.0% in January. Monthly Core PPI showed a 0.3% increase in prices, which beat the 0.2% rise expected but was still lower than the 0.5% from the previous month. Headline Producer Price Index (PPI) rose 1.6% in February, which was well above the 1.1% YoY gain expected and the 1% in January. MoM PPI rose 0.6% versus the 0.3% forecast – the same as the 0.3% previous.

Developments on Euro Front

European Central Bank policymakers are expected to discuss when interest rates will be cut, a key driver for the Euro. Some speakers suggest that interest rates will fall in April or June, with Francois Villeroy de Galhau leaning in favor of April.

However, Bank of Austria Governor Robert Holzmann believes the bank is more likely to cut in June. ECB Governing Council member Yannis Stournaras supports an early rate cut, stating that four rate cuts in 2024 seem reasonable. If more members gravitate to June, it could have a slightly positive impact on the Euro and EUR/USD, while if the De Galhau camp gains momentum, EUR/USD could weaken.