- EUR/USD maintains positive ground above the mid-1.0900s amid US dollar weakness.
- European Central Bank officials stressed the need to wait for more data before making decisions on normalizing interest rates.
- The US Producer Price Index (PPI) unexpectedly fell in December.
- Investors will focus on euro zone industrial production, due later on Monday.
The EUR/USD pair posted modest gains during the early Asian session on Monday. The weak US dollar and risk environment are providing some support to the major pair. Given the lack of high-level US economic data from the US due to the Martin Luther King Jr. holiday, risk sentiment is expected to remain the main driver of the pair’s main price movement. EUR/USD is currently trading near 1.0953, up 0.03% on the day.
European Central Bank officials stressed the need to wait for additional economic data before making decisions on normalizing interest rates. The central bank will have crucial data by June to decide on a potential series of interest rate cuts, but moving too soon could be self-destructive, European Central Bank chief economist Philip Lane said on Saturday. Last week, ECB President Christine Lagarde said that “the hardest and worst part” regarding inflation is likely past, and interest rates will be cut if the ECB is confident that inflation has fallen below 2%.
Around the world, the US producer price index fell unexpectedly in December, raising the possibility that the Federal Reserve will start cutting interest rates this year. According to data released Friday by the Bureau of Labor Statistics, the Producer Price Index rose 1.0% annually in December from November’s reading of 0.8%, while the core Producer Price Index was flat for the month, bringing the annual increase down from 2.0% to 1.8%. . Noting a slowdown in inflation, investors expect additional monetary easing through 2024. Markets are betting on 160 basis points of interest rate cuts from the Fed this year.
Traders will receive further signals from ECB spokesmen this week, including Villeroy (Tuesday) and Nagel (Wednesday). ECB President Lagarde is also scheduled to speak on Wednesday, Thursday and Friday. Apart from this, the ECB meeting minutes will be released on Thursday.