Euro stabilised with inflation continues to rise

The euro is declining slightly on Friday against the US dollar by 0.03% at 12:40 p.m. GMT and settled near the level of 1.07240.

The euro’s movements came with the persistence of stubborn US inflation on the Fed’s preferred measure, which in the end does not seem to have changed the markets’ hypothesis about the impossibility of starting rate cuts by the beginning of the second half.

As the markets had already given up hope on the possibility of the Fed cutting interest rates in June, we may need to see bigger surprises than what we saw on Friday to change the prevailing direction of the dollar. This is because the improved performance of the Eurozone economy, which we saw through a series of data this week, supports the single currency to cut its losses against the dollar as interest rates and bond yields continue to be very high.

While the markets still expect only a 9% probability of the possibility of the Fed reducing current rates by 25 basis points, which is the lowest since attention turned to this month last February, according to the CME FedWatch Tool. In addition, hope for a cut in July also remains weak, so we may not see the start of the lenient path of monetary policy before September, at the earliest now.

As for today’s numbers, we witnessed on Friday the March reading of the core Personal Consumer Expenditure (core PCE) Price Index, which grew by 0.3% on a monthly basis, as was expected, in addition to its consistency at the previous reading at a growth rate of 2.8% on an annual basis, contrary to expectations that it would slow to 2.6%.

The geopolitical front seems relatively calm now, but this may not last for long, with warnings of a re-escalation of the conflict in the Middle East, and this may be in the interest of the dollar as it is the currency of the first safe haven, and with the possibility of starting the ground military operation in Rafah in the coming days, which may result in the region being plunged into a broader state of chaos.