Euro supported by stronger-than-expected inflation

Philip McHugh March 4th 2024 - 2 minute read

The euro ticked higher on Friday as the Eurozone’s latest consumer price index printed slightly above forecast.

Meanwhile, the pound is trading positively this morning, with GBP/EUR stable at €1.1678, and GBP/USD buoyed at $1.2667. GBP/CAD has ticked up to CA$1.7182, while GBP/AUD and GBP/NZD climb to AU$1.9429 and NZ$2.0777, respectively.

Looking ahead, will a quiet data calendar result in limited movement in the currency market today?

What’s been happening?

The euro closed last week on the front foot, following the publication of the latest Eurozone consumer price index.

February’s preliminary CPI figures reported that inflation in the bloc cooled from 2.8% to 2.6%, slightly outpacing expectations it would slow to 2.5%.

The hotter-than-expected inflation figures reflected positively on EUR exchange rates as it helped to rein in bets for an imminent interest rate cut from the European Central Bank (ECB).

The US dollar, meanwhile, was undermined on Friday by the latest ISM manufacturing PMI, after it reported that the contraction in US factory sector growth unexpectedly deepened last month.

At the same time, the pound struggled to attract support at the end of last week, despite comments from Bank of England (BoE) Chief Economist Huw Pill, who suggested the bank is still ‘some way off’ cutting interest rates.

What’s coming up?

Turning to today’s session UK, US and Eurozone economic data is in short supply, which many limit movement in the currency market as investors await some notable releases later in the week.

For GBP investors this will be the unveiling of Chancellor Jeremy Hunt’s Spring Budget on Wednesday.

Markets will be eager to learn more about the Chancellor’s reported plans to cut taxes, particularly in regard to how they might be funded. Analysts have warned that any unfunded tax cuts could spark a Sterling selloff.

On the other side of the Channel, the spotlight will be on the ECB latest interest rate decision. No policy changes are expected this month, but the euro could plunge if the bank doesn’t rule out an April rate cut.

Finally, the focus for USD investors in the first half of the week will be the latest ISM services PMI. Will an expected slowdown in service sector growth last month, drag on the US dollar on Tuesday?

Written by
Philip McHugh

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