Euro looks ahead to ECB interest rate decision during busy week of Eurozone data

With European markets closed on Monday for the Easter holidays, the Euro commenced the week on a subdued note.

On Tuesday, the Euro strengthened against some weaker counterparts, benefitting from its negative correlation with a weakening US Dollar, which provided some support. However, its gains were limited by a cooling in German inflation, leading to increased speculation of European Central Bank interest rate cuts. Nonetheless, the Euro managed to edge higher against its peers despite an unexpected slowdown in Eurozone inflation.

In March, both core and headline inflation rates cooled, contrary to expectations of the headline consumer price index remaining unchanged. However, due to the Euro's inverse correlation with the USD, it managed to hold steady against its peers.

The Euro experienced mixed trading on Thursday as well. Although the final services PMI for March in the Eurozone was revised higher, the common currency's upward momentum was curbed by the release of the European Central Bank's latest meeting minutes.

The minutes reinforced the argument for investors that the ECB would likely pursue an interest rate cut in June, thereby weakening the EUR.

On Friday, the common currency fluctuated during the European session in response to lackluster economic data. German factory orders rose below expectations in February, while retail sales across the Eurozone declined by 0.5% on a monthly basis.

Turning our attention to the week ahead for the Euro, several impactful data releases are expected to trigger volatility in the common currency's trading.

Beginning with Monday, the latest German trade data is scheduled for publication. Forecasts suggest that in February, the German trade surplus may have contracted from €27.5 billion to €26 billion. Such a development could potentially weaken the Euro, indicating challenges in trade for the Eurozone's largest economy.

Subsequently, EUR exchange rates are expected to stay subdued as investors start to anticipate the European Central Bank's interest rate decision on Thursday.

While it's improbable for the ECB to reduce interest rates, any indication in its accompanying forward guidance suggesting that the central bank will soon commence unwinding its monetary policy could exert significant downward pressure on the Euro.

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