The Euro (EUR) has exhibited limited responsiveness to recent domestic economic releases this week. Preliminary first-quarter growth figures underwent a slight downward revision from 0.4% to 0.3% yesterday; however, industrial production data for March surpassed expectations, according to insights from ING’s FX analyst Francesco Pesole. This mixed data paints a complex picture of the Eurozone’s current economic state.
Bias seems to be for testing 1.130 rather than 1.110
“Following a modestly hawkish adjustment in market expectations triggered by the US-China trade agreement, market sentiment and prevailing consensus appear to be converging around the anticipation of two interest rate reductions by the European Central Bank (ECB) this year, a scenario that aligns with our own projections. To date, ECB policymakers have offered minimal resistance to this prevailing viewpoint.” Market participants are closely watching incoming economic data and ECB communications for further clues regarding the timing and magnitude of potential rate cuts. The current implied probability of rate cuts is being factored into Euro valuations.
“Throughout this week, commentary from ECB Governing Council members representing diverse perspectives – including the dovish-leaning Francois Villeroy and the more hawkish Klaas Knot – conveyed a shared confidence that the imposition of US tariffs is unlikely to significantly fuel eurozone inflation. Prior to these remarks, Latvia’s Martins Kazaks, known for his hawkish stance, indicated that a rate cut in June constitutes a ‘pretty possible step’.” This divergence in views, while seemingly aligned on the limited inflationary impact of tariffs, highlights the ongoing debate within the ECB regarding the appropriate course of monetary policy. The market is carefully weighing these statements to gauge the likelihood of a June rate cut and its potential impact on the Euro. Furthermore, geopolitical risks and global economic uncertainty continue to play a significant role in shaping expectations for ECB policy decisions.
