Rate cut expectations drive Euro

The Euro is trading in the 1.0800s on the last day of the week after taking a step down from its previous range in the 1.0900s. The catalyst seems to be a mixture of better-than-expected US macro data and ECB's chief economist Philip Lane pushing back on early rate-cut expectations.

US data on Friday in the main built on Thursday's gains. Industrial Production came out at 0.1% in February, beating economists expectations of flat growth. The Export Price Index rose by 0.8%, easily beating the 0.2% forecast and further adding to the inflationary narrative. UoM 5-year Consumer Inflation Expectations came out at 2.9% the same as previous.

Not all US data was positive, however, as the Michigan Consumer Sentiment Index in March came out at 76.5, which was slightly below expectations and the previous 76.9 figure. The NY Empire State Manufacturing Index came out lower than expected at negative 20.9 when minus 7 had been forecast from negative 2.4 previously.

The data has moderated expectations in favor of the Federal Reserve (Fed) keeping interest rates higher for longer, which is negative for EUR/USD but positive for the US Dollar (USD), since higher interest rates attract greater inflows of foreign capita

A long line-up of European Central Bank (ECB) policymakers have recently appeared in public with to share their views about when the ECB should start cutting interest rates.The official line, provided by Christine Lagarde at the press conference following the March ECB meeting, was that the Governing Council would review interest rates in June.

Following the meeting, however, Governor of the Bank of France Francois Villeroy de Galhau stirred up markets by hinting that an interest-rate cut might come as early as April.His comments suggested that two camps might be forming at the ECB, favoring either a spring or summer rate cut.On Wednesday, the Governor of the Bank of Austria and ECB Governing Council member Robert Holzmann joined the June camp.

Early Thursday ECB Governing Council member Yannis Stournaras seemed to back the case for a spring rate cut, adding that he didn’t buy the argument that the ECB could not cut rates before the Fed, and that four rate cuts in 2024 seemed reasonable.Also on Thursday, ECB Governing Council member Klaas Knot said he believed the ECB would start cutting interest rates in June.

Vice-President of the ECB Luis de Guindos, speaking in Barcelona on Thursday, said “The ECB should have sufficient information in June to begin making decisions about monetary policy,” according to Bloomberg News.