The EUR/USD pair remains relatively stable around 1.0770 during the European trading session on Friday, marking its fourth consecutive day of losses. However, trading volumes are notably light as market participants observe Good Friday. The Euro is under pressure due to increasing suggestions from European Central Bank (ECB) officials hinting at a potential interest rate cut in June.
The Euro encountered additional downward pressure following the release of weaker-than-expected Retail Sales data from Germany. The monthly report for February unveiled a 1.9% decline in the sales of the German retail sector, contradicting expectations of a 0.3% increase following a previous decline of 0.4%. Year-over-year Retail Sales also experienced a notable dip of 2.7%, surpassing the anticipated decline of 0.8% and the previous decrease of 1.4%.
Yannis Stoumaras emphasized on Tuesday a growing consensus within the ECB for a rate reduction in June. ECB policymaker Francois Villeroy highlighted a significant drop in core inflation, despite its sustained elevation. Villeroy suggested that while achieving the ECB’s inflation target of 2% remains feasible, he cautioned against escalating downside risks if the ECB chooses not to implement rate cuts. Additionally, ECB executive board member Fabio Panetta underscored the impact of restrictive policies on dampening demand and contributing to a rapid decline in inflation.
Meanwhile, the US Dollar Index (DXY) strengthens, nearing 104.60, buoyed by recent data indicating annualized economic expansion in the United States (US), primarily driven by consumer spending. In the fourth quarter of 2023, US Gross Domestic Product (GDP) Annualized expanded by 3.4%, surpassing market expectations of remaining unchanged at a 3.2% increase. However, US Core Personal Consumption Expenditures (QoQ) for the same period came in slightly below expectations and previous readings, at 2.0%, compared to the anticipated 2.1%.
The Greenback received further support from hawkish statements made by a Federal Reserve (Fed) official, reinforcing market sentiment. Fed Governor Christopher Waller’s remarks on Wednesday hinted at a potential delay in interest rate cuts, citing robust inflation figures. Investors now eagerly await the US Personal Consumption Expenditures (PCE) report on Friday, which serves as the Fed’s preferred inflation gauge, to gain additional insight and guidance.
