- EUR/USD slightly down finding support despite ECB’s dovish turn and mixed signals from Fed officials.
- ECB officials signal potential for June rate cut, adding a dovish tone to policy outlook amidst wage inflation discussions.
- Market awaits core PCE inflation data and GDP figures in the US, with Fed’s divided stance on rate cuts in focus.
The Euro trims some of its earlier losses against the US Dollar but stays in the red, as the EUR/USD trades at 1.0227, down 0.03%. Recent European Central Bank (ECB) dovish comments contradict the division amongst US Federal Reserve policymakers, who remain looking for evidence of the evolution of the disinflation process.
The DXY, which measures a basket of American currency against six others, is almost unchanged at 104.29. The fall of US Treasury bond yields kept the EUR/USD from diving below 1.0800, which could have opened the door for further losses.
In the meantime, ECB policymakers had turned dovish. On Tuesday, ECB official Yannis Stoumaras stated that there is a growing consensus for a June rate cut, while Madis Muller echoed some of his comments, indicating that the ECB is nearing the stage where it can lower rates.
ECB Chief Economist Philip Lane said on Tuesday that wage inflation—a metric the ECB is following very closely to inform its policy—was “on track” to return to normal levels.
On the US front, Fed officials continued to lay the groundwork for easing policy, but there’s division among the Federal Open Market Committee (FOMC) board. Atlanta’s Fed Raphael Bostic noted that he expects one rate cut instead of two in 2024. Meanwhile, Fed Governor Lisa Cook said that easing policy too soon increases the risk of inflation becoming entrenched.
Chicago Fed President Austan Goolsbee, leaning on the dovish side, expects three cuts, though he says he needs more evidence of inflation “coming down.”
Traders eye US PCE figures and further economic data
In the US economic docket, investors will eye the release of Gross Domestic Product (GDP) figures for the last quarter of 2023, unemployment claims, and the Fed’s preferred gauge for inflation, the core PCE.
The EUR/USD break below the 200-day moving average (DMA) at 1.0836 cleared the path to challenge 1.0800, but thin volumes kept the exchange rate above 1.0810 the day’s low. Nevertheless, the Relative Strength Index (RSI) remains bearish and aims lower. That said, the pair bias remains bearish. If sellers drag prices below 1.0800, the pair could challenge the February 14 low of 1.0694.
On the flip side, buyers reclaiming 1.0836, the 200-DMA further upside is seen at the 100-DMA at 1.0873 ahead of 1.0900.
