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Euro awaits US data, ECB speakers

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The EURUSD exchange continued trading in the mid 1.0900s after pulling back from a peak at 1.0981 achieved last week. With data releases and events affecting both sides of the Euro-dollar pair on Thursday, a cursory glance at the proverbial “crystal ball” suggests some volatility is probable.

In the US, factory gate inflation and Retail Sales data could tone expectations of when the Federal Reserve will start cutting interest rates – a key driver for the US Dollar.

Economists expect Core PPI, an important inflation metric, to drop to 1.9% YoY in February from 2.0% in January. On a month-on-month basis, Core PPI is forecast to show a 0.2% rise, against the 0.5% advance seen in the previous month.

The headline Producer Price Index (PPI) is forecast to show a 1.1% YoY gain, versus 0.9% in January, and a 0.3% gain MoM, the same as previous.

The data is an important leading indicator for CPI inflation. If retailers have to pay more for their goods wholesale, they will usually pass on the increase to consumers.

Market participants maintain their bets on interest rate cuts by the Fed in June, with a probability of 67.2%, as reported by the CME FedWatch Tool.

US Treasury Secretary Janet Yellen commented that it seems improbable for interest rates to return to pre-COVID-19 levels. She also mentioned that the interest rate projections outlined in President Biden’s budget plan were considered “reasonable” and consistent with a wide range of forecasts.

In Europe, a string of rate-setters from the European Central Bank are scheduled to speak, with their comments likely to shed light on whether interest rates will fall in April or June – a key driver for the Euro.

The takeaway is that if inflation is seen as stubborn, interest rates will stay high, supporting the European currency.

Dovish talk from ECB Governing Council big-hitter Francois Villeroy de Galhau on Monday suggested he was leaning in favour of April for a first interest-rate cut.

On Wednesday, Bank of Austria Governor and ECB Governing Council member Robert Holzmann, however, said he thought the bank was more likely to cut in June. The President of the ECB, Christine Lagarde, also said June was the time the ECB would review its policy on rates.

If more members appear to gravitate to June, which is the base case, it could have a slightly positive impact on the Euro and EURUSD. If the De Galhau camp gains momentum, EURUSD could weaken, according to analysts.

Calm before the storm?

After Tuesday’s US inflation figures, economists at Commerzbank said we should be done with most of the first-tier data in EURUSD ahead of next Wednesday’s Fed meeting.

“We should be in for a somewhat calmer few days, at least in the EUR/USD pair.

“After the US data, it will be time to enjoy the calm before the storm and wait for the Federal Reserve. Next week’s Wednesday will be exciting enough for sure.”

(Source: OANDA)