EUR/USD soars as eurozone CPI higher than expectedThe euro has charged out of the gates and posted strong gains on Monday. In the North American session, EUR/USD is trading at 1.0484, up 1.06%. With today's sharp gains, the euro has ended a three-day slide.
Inflation in the eurozone eased to 2.4% y/y in February, down from 2.5% in January but above the market estimate of 2.3%. Monthly, inflation jumped 0.5%, the fastest pace since April 2024 and after a January decline of 0.3%. It was the same story for core CPI, which slowed to 2.6% y/y, down from 2.7% in January but above the market estimate of 2.5%.
Investors focused on the fact that CPI was higher than expected and on the hot monthly CPI figure. As a result, the euro has soared as the European Central Bank could delay rate-cut plans with inflation surprising on the upside. The ECB is also concerned about sticky services inflation, which fell from 3.9% to 3.7% but remains much higher than the inflation target of 2%.
The ECB lowered rates in January and meets next on March 6. There is little doubt that the ECB will trim rates by a quarter-point but after that the rate path is unclear. The eurozone economy is sluggish and hasn't shown much response to the five rate cuts from the ECB since it started its easing cycle last June. The economy could use additional rate cuts but the ECB remains concerned about the upward risk of inflation and today's CPI report hasn't put those worries to rest.
Europe's manufacturing sector is stuck in the doldrums, with contractions in Germany, Italy, France and even Spain, which has been the eurozone's bright spot. Still, there is some optimism among manufacturers, as Germany quickly formed a government and there is the possibility of an end to the war in Ukraine.
EUR/USD is testing resistance at 1.0483. Above, there is resistance at 1.0590
1.0421 and 1.0314 are the next support lines
