EUR/USD dips as German inflation declines – MarketPulse

• Eurozone to release inflation data on Friday
• EUR/USD dips as Germany’s inflation rate falls

German inflation falls to 2.5%

The euro is in negative territory on Thursday. In the North American session, EUR/USD is trading at 1.0800, down 0.35%.

Germany’s inflation rate dropped to 2.5% y/y in February, down from 2.9% in January and lower than the market estimate of 2.6%. This was the lowest level since June 2021, as inflation continues to move closer to the European Central Bank’s target of 2%.

Food and energy prices were the main drivers of the decline, while services inflation was unchanged at 3.4%. Monthly, inflation rose 0.4%, up from 0.2% in February and shy of the market estimate of 0.5%. Core CPI remained steady at 3.4%, its lowest level since July 2022.

The eurozone releases February on Friday, which is also expected to decline. Headline CPI is expected to ease to 2.5%, down from 2.8% in January. Core CPI is projected to decline to 2.9%, compared to 3.3% in January.

If the market estimates are on target, the drop in inflation will put pressure on the ECB to consider lowering interest rates as inflation gets closer to the 2% target. ECB policy makers have been extremely cautious about easing monetary policy too quickly due to fears of inflation resurging, but are well aware that the recipe of high interest rates and a weak eurozone economy could lead to a recession.

In the US, market pricing for Fed rate cuts has been slashed and is currently in line with the Fed projection of three rate cuts this year. In December, the markets priced in as many as six rate cuts but a surprisingly robust US economy and a Fed pushback against rate expectations has pushed a March rate cut off the table, with June or September the likely dates of an initial rate cut.

EUR/USD Technical

• EUR/USD is testing support at 1.0823 . Below, there is support at 1.0760
• There is resistance at 1.0885 and 1.0948

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