The EUR/USD currency pair settled above Thursday’s 3-week low of 1.0732 and recorded a modest weekly gain, following the latest set of macro data out of the United States and the Euro Area and as a US tariff deadline drew near.
The US Dollar weakened across the board, facilitating the EUR/USD pair’s advance, even after data revealed a hotter-than-anticipated core PCE inflation, as it added to stagflation concerns.
Annual core PCE inflation has picked up to 2.8% in February from revised up 2.7% in January, while exceeding market consensus of 2.7%.
Annual headline PCE inflation has remained steady at 2.5% in February.
The inflation data coupled with a 0.4% increase in consumer spending, raised concerns about the Federal Reserve’s path to achieving its 2% inflation target. The data, seen as a key metric by the Fed, pushed US Treasury yields lower.
Traders also grappled with the implications of President Trump’s proposed tariffs. The announcement of a 25% tariff on imported cars and light trucks, along with threats of further levies on EU and Canadian goods, created uncertainty in the Forex space.
“Trump tariff uncertainty is driving markets with investors waiting for the April 2 details,” Mohit Kumar, senior economist at Jefferies, was quoted as saying by Reuters.
“We … think that the initial announcement would open the door for further negotiations and the final impact of tariffs would not be as bad as feared.”
Meanwhile, the Euro faced some selling pressure on Friday after CPI inflation in France and Spain came in below market estimates in March, which prompted investors to boost their bets on more rate cuts by the European Central Bank.
Markets are now pricing in about 60 basis points of ECB rate cuts by year-end, compared to 56 bps previously.
Also, there is now a 90% probability of a rate cut occurring at the central bank’s next policy meeting.
Additionally, Germany’s labor market showed more signs of weakness in March, as the number of unemployed persons went up by 26,000 to 2.922 million, or far above the expected 10,000 increase.
The EUR/USD currency pair settled 0.20% higher at 1.0822 on Friday.
The major Forex pair gained 0.09% for the week.
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