Weekly currency forecast: euro to plunge as Eurozone inflation cools?

The US dollar marched steadily lower last week amid growing expectations for multiple Federal Reserve interest rate cuts this year.

This week, the latest inflation rates for both the US and the Eurozone are due out. With the latter expected to report a notable cooldown, EUR exchange rates could plummet.

Pound

The pound dropped to multi-week lows against some peers last week as comments from current and former Bank of England (BoE) policymakers fuelled interest rate cut bets. However, GBP rebounded amid a rosier outlook for the UK economy.

This week, BoE speculation is likely to continue driving the pound amid a lack of market-moving data and a number of speeches from bank officials. Could a more hawkish tone lift Sterling?

Euro

Mixed trade struck the euro last week, with the common currency wavering without a clear direction. This came amid some lacklustre Eurozone economic data, while a weaker US dollar tempered EUR losses.

The focus this week is undoubtedly on the Eurozone’s preliminary consumer price index for February, out on Friday. Economists expect inflation to have cooled from 2.8% to 2.5% this month. If so, the euro could face heavy selling pressure.

US dollar

The US dollar marched lower last week as markets priced in a slightly more aggressive pace of policy loosening from the Federal Reserve, following comments from officials and cautious meeting minutes.

Looking ahead, the Fed’s preferred measure of inflation – the core PCE price index – is due out on Thursday. Could a slowdown in inflation further boost Fed rate cut bets, thereby undermining USD?

Australian dollar

The Australian dollar traded sideways last week amid muddled meeting minutes from the Reserve Bank of Australia (RBA) and mixed PMI results.

This week, Australia’s latest retail sales figure is the likely focus for AUD investors. Could a strong recovery in sales last month lift the ‘Aussie’?