In a heady turn, the euro returned to above $1.07 on Wednesday, peaking at $1.0714, following unexpectedly weak US macroeconomic data. These data fuel speculation about a possible easing of monetary policy.
The US PMI index surprisingly fell to 50.9 from 52.1 a month earlier in the first reading of April, according to reports revealed on Tuesday afternoon. This figure was significantly below market expectations and sent ripples through the financial markets.
“In this context, the recent rise in the euro appears to be only a temporary upturn,” claimed a Rabobank market analyst speaking to ABM Financial News. “We expect the euro to fall to $1.05 in about three months before undergoing a more structural rise,” he added. He also speculated about future Fed actions: “We now expect two rate cuts from the Fed, although a cut in June seems unlikely.”
The analyst does not predict major swings in the currency market today, but points to Friday as a crucial moment. Then core US inflation figures for March will be released, with an expected decline to 2.7 percent from 2.8 percent in February.
At the same time, according to ECB director Luis de Guindos, the ECB remains determined to cut interest rates in June. In an interview with French newspaper Le Monde, he emphasized: “Unless there are surprises, this decision has already been made.” Christine Lagarde, the president of the ECB, has made it clear that the interest rate decision depends on economic data and not on the actions of the Fed, although developments in the US certainly play a role in the ECB’s considerations.
Meanwhile, inflation in Australia remains a concern, with an annual increase of 3.6 percent in the first quarter. This puts pressure on the Reserve Bank of Australia, given the last rate hike of 25 basis points in January.
The euro ultimately fell 0.1 percent to $1.0683, while the British pound fell 0.2 percent to $1.2427 against the US dollar. However, the Australian dollar climbed 0.3 percent to 0.6504 US dollar.
