The euro experienced an upswing, surpassing $1.12, as the dollar weakened due to a surprise decrease in US inflation. Investor anxiety regarding US-China trade negotiations also contributed to the euro’s strength, despite a temporary tariff truce. Meanwhile, the European Central Bank’s monetary policy outlook shifted, with markets anticipating potential rate cuts despite some policymakers expressing confidence in reaching inflation targets.
- The euro climbed above $1.12.
- The dollar weakened due to an unexpected drop in US inflation.
- Investor caution regarding US-China trade negotiations increased, despite a tariff truce.
- US tariffs on Chinese goods remain elevated, averaging around 40%.
- Money markets now price the ECB’s deposit facility rate at 1.79% by year-end.
- Markets are almost fully pricing in a 95% chance of a rate cut in June.
- ECB policymaker François Villeroy de Galhau suggested potential for another rate cut by summer.
- ECB policymaker Joachim Nagel expressed optimism about inflation converging toward the 2% target.
The euro benefits from a combination of factors, including a weaker dollar and market speculation surrounding monetary policy. The potential for further ECB rate cuts contrasts with some policymakers’ optimistic outlook on inflation. This divergence in expectations creates uncertainty and could lead to fluctuations in the currency’s value as investors react to evolving economic data and policy announcements.