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Euro lower as US rate hikes, weak inflation weigh on outlook

Euro daily update


Euro daily update

After falling yesterday, the euro is mostly mixed today. Looking at the common currency against its major peers, the euro is currently lower against the Japanese yen. As we wrote in yesterday's daily update, we expect EUR/JPY to sell off this week as investors hedge their euro positions due to upcoming political risks. Turning to recent events, the ECB's Weidmann (who is widely expected to be the next ECB president) stated that the Bank could end its asset buying program this year while considering the possibility of rate hikes in 2019. He reiterated his view that current market expectations were “not completely unrealistic”. Despite his supportive comments, the euro fell thanks to weak German inflation figures and the likelihood of more US rate hikes. Both headline and harmonized German inflation figures were below estimates, weakening the outlook for a more aggressive monetary policy response. Looking at the US dollar, the buck rose after Federal Reserve Chair Powell upgraded his outlook for GDP growth this year. Our short-term outlook on the euro is neutral, while our medium-term outlook is bullish.  

EUR/USD is currently flat and trading above 1.2230. The euro is down slightly against the yen, with EUR/JPY trading above 130.90. Finally, the euro is flat against the pound, with EUR/GBP above 0.8790.

Looking at economic data from the Eurozone this week, we’ll see February inflation and manufacturing PMIs. German Bundesbank President Weidmann remarked that the ECB could end its asset buying program this year. Eurozone economic sentiment (114.1 vs. 114 expected) was slightly ahead of expectations while consumer confidence (0.1) met expectations. German headline inflation (1.4% vs. 1.5% expected) and HICP (1.2% vs. 1.3% expected) both missed expectations. Later today, we’ll see German Gfk consumer confidence and unemployment numbers. We’ll also get core January CPI and February headline CPI for the Eurozone. On Thursday, we’ll get February Markit manufacturing PMIs for the Eurozone. On Thursday, we’ll see German retail sales and Eurozone producer prices. Last week, Eurozone CPI figures met expectations while manufacturing PMIs were below consensus estimates.


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