EURO FUNDAMENTAL BACKDROP
The euro gathered some support this Friday morning with a marginally weaker USD and better than expected German CPI data (see economic calendar below). Although actual numbers printed in line with forecasts, the 8.7% figure highlights the elevated and stubborn inflationary pressures in Germany. With Germany being the largest economy within the eurozone, the inflation release acts as a proxy for the broader region, adding to hawkish sentiments from the European Central Bank (ECB).
The focus for today is firmly on the US Non-Farm Payroll (NFP) release with projections at 205K. If the last 12 months is anything to go by, we could easily see a figure higher than this, leaving room for more hawkish repricing and possibly cementing a 50bps rate hike in the Fed’s upcoming meeting – currently priced around 36.60bps showing no distinct bias just yet (see table below). While Fed pricing remains in a state of indecision, the ECB’s March meeting looks to be a sure thing at 50bps, placing added interest on the upcoming NFP report. Two other key metrics of the NFP report will come via the unemployment and wage figures with wages being a key contributor to high inflation through the services sector.
To close out the trading session from a EUR/USD perspective, the ECB’s Christine Lagarde is scheduled to speak and may look to reiterate the need to quell inflation after German data today.
FEDERAL RESERVE INTEREST RATE PROBABILITIES
ECB INTEREST RATE PROBABILITIES
EUR/USD DAILY CHART