Euro Rises as Markets Price ECB Rate Cut
The euro rose modestly to $1.165, partially recovering from early-week losses, as the dollar softened amidst the escalating Middle East crisis.
The dollar is trading a little softer today, but the tone is one of nervous consolidation. Amidst the dollar’s retreat, the dollar index weakened.
The dollar eased after reaching a three-month high on Tuesday. The DXY dollar index fell 0.1% to 98.928, having reached a high of 99.683.
The European single currency was sold to $1.1530 in the FX market, its lowest level since last November, when it bottomed in the $1.1470-90 area.
EURUSD settled above $1.1600 but still well below Monday’s low of approximately $1.1670. After it initially fell to $1.1575 in the Asia Pacific session, it recovered to almost $1.1650 today, where it stalled in Europe.
The technical damage inflicted is significant, and although the euro is oversold, near-term consolidation may be the most that can be hoped for until the fog of war lifts.
Despite the slight rebound, the euro remains near one-and-a-half-month lows amid the ongoing Middle East conflict and concerns over rising energy costs.
February Eurozone data showed annual inflation at 1.9% and core inflation at 2.4%, both above expectations. Markets now price roughly a 40% chance of an European Central Bank (ECB) rate hike by year-end, a sharp reversal from last week when a rate cut seemed equally likely.
The February eurozone final services and composite PMI were in line with the preliminary estimates. At 51.9, the composite PMI improved for the first time in three months but is below 52.8, the 2025 peak recorded last November.
Last February it was at 50.2. Separately, eurozone producer prices rose by 0.7% in January, but the deflationary grip remained, and producer prices are off 2.1% year-over-year. Lastly, the January unemployment rate fell to a new low of 6.1% from 6.3% in December. British Pound Climbs Amidst Downgraded UK Growth Forecast
