German CPI data to drive Euro

The EUR/USD pair trades on a weaker note during the early Asian session on Friday. The major pair remains capped within the weekly range in the 1.0770/80 band. The German inflation data will be the highlight on Friday. At press time, EUR/USD is trading at 1.0775, losing 0.02% on the day.

Two US Federal Reserve officials indicated on Wednesday that the central bank is on track to tackle inflation, but that it is still too early to start lowering interest rates. The markets pare their bet on rate cut expectations in the March meeting. According to the CME FedWatch Tool, futures traders have priced in over 65% that the Fed will have started lowering interest rates by the time of its following meeting in May.

The European Central Bank (ECB) Chief Economist, Philip Lane, stated on Thursday that data suggest near-term disinflation is occurring faster than expected, but further progress is required to get to the 2% goal. Meanwhile, ECB Governing Council member Pierre Wunsch said that there were some hopeful signs on wages, but not enough for the ECB to start rolling back restrictive policies. Wunsch added that he would prefer to wait for more data before cutting rates.

The ECB’s next meeting will take place on March 7. Market players expect the central bank to offer hints about the timeline for a rate cut. The dovish remarks might drag the Euro (EUR) lower and act as a headwind for the EUR/USD pair.

Moving on, market players will keep an eye on the German Consumer Price Index (CPI) for January and German Buba President Nagel's speech. Traders will take cues from the data and find trading opportunities around the EUR/USD pair.