Euro and Dollar hold steady as focus shifts to inflation

30 Mar 2023

The Dollar and Euro held steady on Thursday on fading worries over the banking sector, whilst investors concentrated on inflation to forecast upcoming rate moves by central banks.

In Germany, consumer prices increased by 0.6% month-on-month in March, compared to a 1% rise last month, and edged up 6.9% year-on-year, from a previous 8.5% figure, in the state of North Rhine Westphalia.

Elsewhere, in Spain, data revealed consumer prices increased 3.3% year-on-year this month, the slowest pace since the 12 months to August 2021, and falling short of analysts' forecasts, Reuters reports.

"With the European Central Bank (ECB) explicitly data-dependent...this week's inflation figures are set to be an important driver of the market's rate expectations," stated Francesco Pesole, ING FX strategist.

Since July, the ECB has hiked its key deposit rate by 350 basis points to 3% in an attempt to curtail inflation. According to Refinitiv data, there are currently two rate hikes of 25 basis points by the ECB priced in by September.

The single currency rose 0.07% to $1.0851 yet was on course to end March with a 2% gain.

In addition, the Dollar index – measuring the greenback against six rivals – was down 0.1% at 102.52 as banking crisis fears diminished. The index was on track to register a 2% fall for this month due to market turmoil fuelled by the Silicon Valley Bank collapse and the Credit Suisse takeover by UBS.

"The broader risk sentiment appears sustained as bank contagion concerns continued to fade," according to Christopher Wong, a currency strategist at OCBC in Singapore.

Furthermore, US personal consumption expenditures due out on Friday will give a greater indication of inflationary pressures within the country's economy, the Reuters report adds.

"With recession fears fading off, the market's focus is now turning to the upcoming US PCE data later this week, which is seen as the Fed's favourite inflation parameter," said CMC Markets analyst Tina Teng.