EURUSD is heading into another German inflation release, with the pair testing a key level.
The euro versus the dollar has dropped below the 1.0735 mark and could open up further lows with weak inflation from Europe’s largest economy.
EURUSD– Daily Chart
The following support is around the 1.065 level with a moving average that could see the price move to 1.050 if the euro loses support. The pair is heading for a fifth losing day in a row.
German inflation is expected to rise to 8.9% from last month’s 8.6%. A lower number could reduce expectations of an ECB rate hike after recent hawkishness.
ECB president Christine Lagarde said last Thursday that even beyond an expected rate hike in March, “we know that we are not done.” The central bank “will stay the course in raising interest rates significantly at a steady pace,” Lagarde said at a news conference.
“Now you will say, ‘Well, yes, but what about after March? Does that mean that you have reached the pinnacle or the peak?’ she added. “No, no, no, no. We know that we have ground to cover. We know that we are not done.”
The US dollar has a final piece of economic data on Friday with Michigan Consumer Sentiment figures. The dollar has been supported by Fed Chair Jerome Powell, who said the “disinflationary process” in the US economy has begun. Still, additional rate hikes will likely be necessary to bring inflation back to its 2% target.
Analysts had been awaiting Powell’s speech with some anxiety after markets had dropped on January’s jobs report for the US economy. They had anticipated a hawkish Powell on the back of such a strong labour market. “If we continue to get, for example, strong labour market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in,” Powell said.
“My guess is it will certainly take [higher interest rates] into not just this year, but next year to get down close to 2%,” Powell added.
