EUR/USD: Global PMIs and U.S. Core PCE in Focus
The EUR/USD pair remains in focus as Germany embarks on a historic fiscal expansion. The newly approved legislation allows for a €500 billion infrastructure investment fund and eases borrowing limits, likely boosting GDP and sustaining inflation. These measures provide a supportive backdrop for the euro.
Last week, German ZEW Economic Sentiment exceeded expectations (51.6 vs. 48.1), though Final CPI was revised lower (2.3% vs. 2.4%).
In the coming week, key data highlights include global PMI releases on Monday and the U.S. core PCE price index on Friday.
GBP/USD: Sterling Faces Volatility
The Pound Sterling corrected last week after reaching $1.3 against the U.S. dollar. Despite geopolitical concerns - including U.S. airstrikes in Yemen and tensions in Gaza - GBP/USD held firm, benefiting from USD weakness due to recession concerns and potential Fed rate cuts.
The UK Consumer Price Index (CPI) release on Wednesday will be pivotal, alongside the British Annual Budget.
The Bank of England maintained interest rates at 4.5% last week, with inflationary pressures keeping markets cautious.
USD/JPY: Yen Under Pressure as US Dollar Gains Strength
USD/JPY extended its gains after Japan's National CPI showed a slowdown in inflation, with core CPI rising 3% YoY, down from 3.2% in January.
This weakened the yen, supporting a move above the mid-149.00s.
The Fed maintained its projection for two rate cuts in 2025, though rising inflation expectations bolstered the U.S. Dollar.
However, Japan’s spring wage negotiations suggest continued strong wage growth, which could drive inflation and prompt further action from the Bank of Japan.
Despite recent gains, USD/JPY’s upside remains capped by divergent Fed-BoJ policy expectations.
AUD/USD: Aussie Struggles Below 0.63
The AUD/USD pair remains under pressure, failing to recover from its weekly lows.
Disappointing Australian jobs data showed employment declined by 52.8K in February, missing forecasts of a 30K increase.
This weak labour market data increases the likelihood of RBA rate cuts, further weighing on the Australian dollar.
The Fed’s cautious stance on rate cuts supported the USD, adding to AUD/USD’s downside. However, optimism around China’s stimulus and hopes for a U.S.-China trade agreement may limit further losses.
Traders will watch Australia's federal budget release on Tuesday for further market cues, as well as the monthly consumer price index indicator on Wednesday.
Key Economic Events for the Week Ahead:
Monday: Global Manufacturing & Services PMIs (Eurozone, US, UK, Japan, Australia)
Tuesday: U.S. Consumer Confidence, New Home Sales, Australian Federal Budget
Wednesday: U.K. CPI, British Annual Budget, U.S. Durable Goods Orders
Thursday: U.S. Q4 GDP Revision, Initial Jobless Claims, Pending Home Sales
Friday: U.S. Core PCE Price Index, UK Retail Sales
