The euro declined against the greenback yesterday following the ECB’s slightly dovish monetary policy statement. While maintaining the benchmark interest rate, the ECB signaled a likely rate cut in the months ahead. This triggered the euro sell-off in the market.
The better-than-anticipated US first-time unemployment claims also fueled the Euro’s decline against the greenback. Overall, the EUR/USD pair declined from a high of 1.0747 to a low of 1.0701 in the past 24 hours.
The European Central Bank (ECB), following the monetary policy meeting in Frankfurt, left the benchmark interest rates unchanged at an all-time high of 4.50% but indicated that a rate would likely be considered in the June policy meeting.
The ECB also stated that the benchmark deposit rate would remain unchanged at 4% until the governing council is convinced that inflation has stabilized.
In a change of stance from the earlier language, the ECB stated that it “would be appropriate” to slash interest rates provided underlying inflationary pressures, the latest economic forecasts, and the effect of earlier interest rate hikes increased its optimism that inflationary pressures were consistently easing towards the 2% target.
Eurozone inflation has eased from 10.60% recorded in 2022 to 2.40% in March, which is appealingly close to the central bank’s objective.
After the meeting, ECB President Christine Lagarde expressed her expectation that Eurozone inflation would experience fluctuations in the coming months before gradually easing towards the 2% target by 2025. Lagarde also voiced concerns about the slowdown in wage growth and emphasized that risks to Eurozone economic growth continue to be biased towards the downside.
Nevertheless, traders in the swap market slightly downwardly revised the probability that the ECB will start slashing rates in June to 70%, down from 75% earlier.
According to the US Department of Labor, the country’s unemployment claims declined to 211,000 in the week ended April 6 from 222,000 (upwardly revised from 221,000) in the previous week and bettered forecasts of 216,000. The four-week moving average was 214,250, down from 214,500 (upwardly revised from 214,250) in the prior week.
According to the Bureau of Labor Statistics, the US producer price index (PPI) inched up 0.20% m-o-m in March following a 0.60% increase in the previous month but was a notch below the forecasts of 0.30% growth.
The increase in March was led by a 0.30% m-o-m rise in service prices. However, goods prices inched down 0.10% in the same period.
On a y-o-y basis, the US PPI rose by 2.10% in March 2024, reflecting the steepest increase since rising 2.30% y-o-y in April 2023.
Excluding food, energy, and trade services, the core PPI grew by 0.20% m-o-m in March, following a 0.30% increase in the previous month and in line with economists’ expectations.
On a y-o-y basis, the US core PPI rose by 2.80% in March 2024.
The ECB’s rate-cut signal is expected to keep the EUR/USD pair slightly bearish in the near term.
Technically, the EUR/USD pair is declining after facing resistance at 1.0870. The next level of support is anticipated to be only near 1.0440. Additionally, the currency pair is trading below its 50-day moving average, while the stochastics indicator is descending toward the bearish zone.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
