The euro capped the biggest monthly gain since April, after data showed the inflation rate in the euro zone accelerated at a faster-than-expected pace in February, relieving concerns ECB may ease monetary policy at its meeting next week.
EUR/USD touched a two-month high at 1.3824 at 20:00 GMT, after which the pair settled at 1.3802 on Friday, capping a 2.3% gain in February, the most since April. Support was likely to be received at February 27th low, 1.3643, while resistance was to be encountered at December 27th high, 1.3894.
Eurostat reported on Friday that the cost of living in the euro area grew at an annualized rate of 0.8% in February, the same as in the previous month and exceeding analysts’ projections for a 0.7% increase. The data was preliminary and the final figures for February are scheduled to be released on March 17th.
At the same time, core consumer prices, which exclude volatile items such as food, energy, tobacco and alcohol increased at an annualized rate of 1% in February, exceeding experts’ forecasts for a 0.8% advance and up from January’s 0.8% increase.
“The inflation numbers were better than expected, and some of the expectations for a rate cut next week have been tempered,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc, said yesterday in a Bloomberg interview. “Going into this week, there was building anticipation for an ECB rate cut.”
A separate report showed the jobless rate in the 18-nation common currency area remained unchanged at 12% in January, in line with analysts’ estimates, but close to a record high of 12.1% last seen in September.
However, annual inflation remains less than half the ECB target of just below 2%, registering a a fifth straight reading under 1%, which was referred by ECB President Mario Draghi as a danger zone.
On February 6, the ECB President Mario Draghi refrained from taking action to counter low inflation, but said “we are willing and we are ready to act” as soon as March, when more euro zone data will be available. His comments came after the ECB left its benchmark interest rate at a record-low 0.25%.
ECB policy makers are set to reconvene on March 6th, when the central bank is expected to publish its quarterly macro-economic forecasts, which will provide first inflation predictions for 2016 and based on that to take its interest rates decision.
Meanwhile, the US dollar capped the worst month since September even after Federal Reserve Chair Janet Yellen said the central bank will probably continue with its plan to gradually reduce the scale of monthly asset purchases. At the same time, policy makers will try to determine whether the weakness economy has recently demonstrated is due to temporal factors.
“Unseasonably cold weather has played some role,” she said in her testimony in front of the Senate Banking Committee on Thursday. “What we need to do, and will be doing in the weeks ahead, is to try to get a firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to softer outlook.”
Yellen indicated that the Federal Reserve is abandoning its numerical threshold, that has linked any decision to increase borrowing costs to nation’s rate of unemployment. She also reiterated what the central bank has already said in a number of statements – that the scale back of monetary stimulus will continue at a “measured pace”, while the bond-purchasing program will likely be exited in the fall.
In addition, the Department of Commerce said yesterday that US durable goods orders, fell 1% in January, following a revised 5.3% drop in the previous month. Analysts had anticipated that bookings for durable goods or those meant to last at least three years will decline 1.7% last month.
Orders for durable goods, which exclude volatile transportation items, rose 1.1% in January, confounding experts’ forecasts of a 0.3% drop. December’s core durable goods orders have been revised down to a 1.9% decline from a previously estimated 1.6% drop.
A separate report revealed that the number of initial jobless claims in the United States rose by 14 000 to reach 348 000 during the week ended on February 22nd, while analysts had projected a decline to 335 000. This higher-than-expected number of Americans, who filed for unemployment benefits last week, boosted concerns that nation’s labor market is demonstrating an uneven recovery.
EUR/USD may be influenced by a number of reports and/or events scheduled during the next week as follows:
On Monday (March 3), Spain, Italy, France, Germany and the euro zone will release data on their services PMI for February, accompanied by the ECB President Mario Draghis statement later in the day. Meanwhile, in the US the Institute for Supply Management will report on its manufacturing PMI for February.
On Tuesday (March 4), Spain will release data on net unemployment for February, while in the US, investors anticipate the statement of Fed President for Richmond Jeffrey Lacker.
On Wednesday (March 5), the euro zone will release data on its Gross Domestic Product in the fourth quarter, accompanied by data on retail sales in February. In the US, the Automatic Data Processing will release the change in non-farm payrolls, while later the Institute for Supply Management will publish its services PMI.
On Thursday (March 6), the ECB will announce its keenly anticipated interest rate decision, which will be accompanied by a statement of the central banks President Mario Draghi, who will give forward guidance on the ECBs monetary policy. The US will report on the number of initial jobless claims for the week ended March 1st, which are expected to decline to 335 000 from 348 000 a week ago.
On Friday (March 7), the largest euro area economy, Germany will publish data on its industrial production in January, while in the US, the Bureau of Labor Statistics will report on the number of non-farm payrolls in February, accompanied by a report on the unemployment level. A separate report will reveal the trade balance of the country in February.
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