Euro's Risk Amid CPI Surge
Euro marked its strongest two-month performance in a year, surging 4.4% against the US dollar in November and December 2023.
The dollar's weakness largely contributed to this rise, driven by expectations of swift rate cuts from the Federal Reserve, eroding its competitive edge.
The European Central Bank (ECB) countered rate-cut pressures. Despite the Fed's market-friendly stance in December, ECB President Christine Lagarde dismissed talks of rate cuts, propelling the euro up by over 1%.
Lagarde also anticipated fundamental impacts boosting December inflation and projecting a slower inflation decline in 2024. Forecasts predict Germany's CPI to rise to 3.9% from November's 2.3%.
This week's release of regional CPI figures, expected after German data, forecasts inflation reaching 3% in December, marking a three-month high.
Yet, market doubts linger regarding the ECB's hawkishness. The market's implied path continues to sway dovishly after December, with expectations of the first 25 basis point cut by April.
Traders have factored in six cuts, totaling 150 basis points or a 1.5% rate decrease, and imply a 68% likelihood of a seventh cut. This hints at a perceived tilt toward a dovish policy trajectory.
The dollar's weakness largely contributed to this rise, driven by expectations of swift rate cuts from the Federal Reserve, eroding its competitive edge.
The European Central Bank (ECB) countered rate-cut pressures. Despite the Fed's market-friendly stance in December, ECB President Christine Lagarde dismissed talks of rate cuts, propelling the euro up by over 1%.
Lagarde also anticipated fundamental impacts boosting December inflation and projecting a slower inflation decline in 2024. Forecasts predict Germany's CPI to rise to 3.9% from November's 2.3%.
This week's release of regional CPI figures, expected after German data, forecasts inflation reaching 3% in December, marking a three-month high.
Yet, market doubts linger regarding the ECB's hawkishness. The market's implied path continues to sway dovishly after December, with expectations of the first 25 basis point cut by April.
Traders have factored in six cuts, totaling 150 basis points or a 1.5% rate decrease, and imply a 68% likelihood of a seventh cut. This hints at a perceived tilt toward a dovish policy trajectory.
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