EURUSD slips lower following a robust start
EURUSD falls after strong US data indicate an unexpected increase in Durable Goods Orders in February.
The contrast in Fed and European Central Bank rhetoric signals that future downturn is possible.
The pair’s primary announcement on Tuesday is US Durable Goods Orders.
The EURUSD edged lower into the lower 1.0800s on Tuesday during the US session, following the announcement of US Durable Goods Orders for February, which far exceeded expectations, according to US Census Bureau data.
Headline Durable Goods Orders increased by 1.4% versus 1.3% expected, while Durable Goods Orders ex Defense increased by 2.2% over 1.1% expected. Durable goods ex-transportation also exceeded expectations, coming in at 0.5% versus 0.4%.expected. Finally, nondefense capital goods ex Aricraft gained 0.7%, vs 0.1% predicted.
The data shows that the Federal Reserve (Fed) will face less pressure to lower interest rates in order to avert a hard landing. The continuation of increasing interest rates benefits the US Dollar since it leads to more international capital inflows.
EURUSD falls amid further positive US data.
The overall economic picture continues to show that the US economy is performing extraordinarily well, and inflation is high.
This implies that the Federal Reserve (Fed) will not need to act hastily in lowering interest rates, a key FX driver. Higher interest rates for a longer period of time benefit the US dollar by attracting more foreign capital inflows.
On Fed speakers’ comments on Monday were generally hawkish, pushing for a delay in interest rate cuts.
Raphael Bostic, President of the Federal Reserve Bank of Atlanta, stated that he believes the Fed would only cut once in 2024, contrary to the official line, which remains three cuts.
Federal Reserve Governor Lisa Cook was cautious, suggesting that the Fed needs to take a “careful approach” to gradual easing to “ensure inflation returns sustainably to 2.0%.”
Their comments were most likely responsible for the small recovery in some USD pairs throughout Monday’s US session.
US Durable Goods Orders for February will provide additional information on the US economy.
On Tuesday, US Durable Goods Orders for February will provide additional information on the US economy, potentially impacting the pair.
The headline figure is anticipated to reveal a February had a 1.3% increase after a 6.2% fall in January. A significant departure from expectations might affect EURUSD, with a higher-than-expected figure driving the pair down and a lower number pushing the pair higher.
ECB officials struck a dovish tone.
In Europe, however, central bank officials struck a more dovish tone on Monday, with many European Central Bank (ECB) Governing Council members hinting at the potential of earlier-than-expected interest rate reduction.
Fabio Panetta, an ECB member, stated that inflation was swiftly falling to the target, and therefore a “consensus emerging” for a rate cut. His statements raise the prospect of a rate cut in June, or perhaps sooner. A rate drop in April would be adverse for the Euro. Lower interest rates attract smaller inflow of Foreign capital.
ECB Chief Economist Philip Lane stated on Monday that he was “confident” that wage inflation was “on track” to decline to a level consistent with the ECB’s 2% inflation objective. Lane also stated that at this moment, the ECB might begin to reverse its interest rate stance.
If anything, the growing disparity between what Fed speakers advocate and what ECB officials say should drive EURUSD down. However, the Fed-ECB difference may have already been built into last week’s sell-off.
