Euro regains ground ahead of US inflation data

Euro rose in European trade on Wednesday against a basket of major rival, extending its recovery from two-month lows against the dollar ahead of major European inflation data for March, which will help determine the likely path ahead for European policies. 

Cold data will boost the case of an early ECB interest rate cut in June, which will renew concerns about the US-Europe policy gap.

EUR/USD

EUR/USD rose 0.1% to $1.0779, with a session-low at $1.0766, after rising 0.25% on Tuesday away from two-month lows at $1.0725. 

Interest Rate Gap 

The current US-Europe interest rate gap stands at 100 basis points, the lowest since May 2022, and is expected to expand to 125 basis points next June if the ECB went ahead with a rate cut while the Federal Reserve abstained.

European Rates

Recent bearish remarks by several ECB policymakers bolstered the case for an early interest rate cut in June, with markets estimating a total of 90 basis points of rate cuts this year.

Inflation Data

Later today, consumer prices data for Germany and other European countries will be released, while tomorrow, data for the whole euro zone will be released.

Euro Performance Estimates

Credit Agricole’s forex analysts expect the dollar to outperform the euro relatively, as the euro is exposed to potential downward inflationary shocks this week.