EUR/USD Drops Ahead of ECB, Eurozone Inflation Cools
EUR/USD weakened early in Thursday's European session, hovering around 1.1785 after Eurozone inflation data fell again, as markets awaited tonight's ECB interest rate decision.
The main trigger came from the Eurozone HICP release: headline inflation slowed to 1.7% YoY in January (from 1.9% previously). Core inflation also fell to 2.2%, while services inflation also eased—a combination that has led markets to begin to see the possibility of a more open ECB easing bias going forward.
On the policy front, the ECB is widely expected to hold interest rates for the fifth consecutive year. Therefore, the market focus is not on the decision itself, but on the tone of Christine Lagarde's press conference: whether the ECB emphasizes the "risk of inflation being too low" (dovish) or remains firm and waits for further data (more hawkish).
Meanwhile, in the US, a factor that could restrain EUR/USD's weakness is the renewed focus on the Fed's independence issue. Trump said he wouldn't appoint Kevin Warsh if Warsh intended to raise interest rates—a statement that could lead markets to believe the Fed's policy stance remains tilted toward lower rates, thus limiting the dollar's further appreciation.
Today, markets are also awaiting additional data, such as German Factory Orders and Eurozone Retail Sales, to confirm whether slowing inflation is accompanied by cooling demand. The bottom line: EUR/USD is currently in "wait and see" mode—and its next direction depends largely on whether the ECB sounds more dovish or remains steadfast even though inflation is already below target. (asd)
Source: Newsmaker.id
