EUR/USD is under pressure near 1.0800 as the USD Index remains high at 104.40. The market anticipates US PCE inflation data on Friday, which could influence interest rates.
The Eurozone faces economic risks due to the potential for further interest rate cuts by the European Central Bank, following threats of tariffs from US President Trump. Germany is responding by increasing Euro circulation, approving a 500 billion Euro infrastructure fund.
Eurozone Inflation Outlook
ECB President Christine Lagarde commented that inflation from the trade war would ease over time. François Villeroy de Galhau noted that the Deposit Facility Rate could decrease to 2% by summer.
In North America, EUR/USD is experiencing uncertainty as the US Dollar retains its strength. Consumer confidence has declined, with March sentiment reported at 92.9, down from 100.1 in February.
The upcoming core PCE inflation data is projected to rise by 2.7% year-on-year, up from 2.6% in January. Durable Goods Orders data has indicated a positive trend with a 0.9% increase in February.
Technical analysis shows EUR/USD correcting from a five-month high of 1.0955, with support at 1.0630. The psychological barrier for Euro bulls stands at 1.1000.
Key Inflation Indicator
The PCE Price Index is a key inflation measure for the Federal Reserve, excluding volatile food and energy prices. A higher reading could bolster the USD against other currencies.
With EUR/USD hovering near 1.0800, the markets appear to be weighing the resilience of the US Dollar, which remains firm around 104.40 on the USD Index. There’s little doubt the upcoming US core PCE inflation data could steer expectations on Federal Reserve policy, and traders seem to be positioning cautiously ahead of its release on Friday. If inflation prints higher than expected, interest rate cut expectations may weaken, reinforcing the greenback’s foothold.
Meanwhile, risks in the Eurozone persist. Monetary policy decisions from the European Central Bank remain closely tied to external pressures, including the possibility of renewed tariffs from the US. This is being met with a bold fiscal move from Germany, which has opted to pump half a trillion euros into infrastructure spending. The injection of liquidity could provide short-term economic stability, but its long-term effectiveness will be debated.
Lagarde’s remarks suggest a belief that inflation stemming from trade tensions may not be enduring. She appears to be reinforcing the idea that price pressures linked to tariffs should dissipate with time. Villeroy de Galhau’s statement points to an expected path lower for the Deposit Facility Rate, with a target of 2% by summer. If further reductions materialise, that could widen rate differentials with the US, putting the Euro under added strain.
In broader North American trade, EUR/USD remains in a state of flux. The latest consumer confidence data isn’t inspiring, showing a sharp drop from 100.1 in February to 92.9 in March. The sentiment shift could hint at softer household spending, though this has yet to translate into definitive shifts in Fed policy expectations. On the other hand, the latest durable goods data showed a 0.9% rise for February, indicating resilience in certain sectors of the US economy.
From a technical standpoint, EUR/USD appears to be retracing after hitting a five-month peak at 1.0955. Support remains near 1.0630, while further upside may struggle near 1.1000—a level that remains psychologically important. Any rally towards this barrier would likely require a fundamental catalyst, possibly a softer-than-expected inflation reading from the US.
The PCE Price Index remains one of the most watched inflation gauges for the Federal Reserve, as it strips out volatile food and energy components. Should the reading exceed projections, the greenback could strengthen further, increasing downward pressure on the Euro. The market will be quick to react if rate-cut expectations in the US are pushed back further into the year.
