Could eurozone inflation figures reignite the rate cut debate next month?

March has widely been written off as the likely moment that some major central banks will start cutting interest rates but data next week may change that for one.

The European Central Bank is arguably closer than any other at this point to pulling the trigger on an easing cycle and while the odds of a cut, in the markets, are still low, they could improve if we see a significant revision to the January inflation data on Thursday.

With the bloc flirting with recession, it won’t take much of a downward revision for the ECB to have to consider rate cuts, with the current rate of headline and core CPI within touching distance of the 2% target.

Also on Thursday, we’ll get PMI figures for the eurozone, Germany, and France which could offer an up-to-date view on the economic situation and prospects for the euro area. The surveys are currently deep in negative territory so any improvement, even one that leaves it in contraction territory will be welcome.

EURUSD Daily

Source – OANDA

EURUSD has continued to trend lower this week but it may be running into some support. The latest rotation off the 61.8% Fibonacci retracement level came amid weaker momentum and a divergence between the price and the MACD.

Perhaps this is a sign of exhaustion in the decline since the turn of the year and that it occurs around a key Fib level may be considered a further bullish indicator.

PMIs eyed after the UK fell into recession at the end 2023

We’ve had a lot of data from the UK over the last week which left us with a much better idea of where things stand going into a big election year.

The economy fell into recession at the end of 2023, albeit a very mild one, while inflation didn’t rise last month as it was expected to, and retail sales roared back at the start of the year. While there’s plenty of room for improvement, the UK is in a good position to see rates falling soon and the BoE is confident that the economy will quickly bounce back too.

It’s much quieter next week on the data front, with manufacturing and services PMIs on Thursday the only notable releases. The services component has rebounded strongly over the last couple of months and another good reading could back up the BoE view on the economy this year.

GBPUSD Daily

Source – OANDA

It’s been quite a choppy week for cable after some bearish developments earlier this month. The move below the topping formation neckline, around 1.26, appeared to be quite bearish, as did the following rebound off a key Fib level after rebounding this week, but it’s lost some momentum already before reaching the February lows.

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at [email protected]. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.