Euro declined in European trade against the dollar, extending gains for the second session and almost hitting a five-week trough as traders shun risks.
Euro is heading for weekly losses on renewed concerns about the US-Euro zone interest rate gap.
The odds for a US interest rate cut in March 2024 continue to decline following strong US data and aggressive remarks by Fed officials.
EUR/USD
EUR/USD fell 0.1% to 1.0867, with a session-high at 1.0889, after losing 0.1% on Thursday, resuming losses and moving off five-week lows at 1.0844.
Weekly Trades
EUR/USD are down 0.75% so far this week, on track for the second weekly loss in three weeks amid renewed concerns about the US-Euro zone interest rate gap.
Interest Rate Gap
The current interest rate gap between the US and the euro zone stands at 100 basis points, the lowest since May 2022, and investors had hopes for a reduction to 75 basis points in March when the Federal Reserve was supposed to start cutting rates.
However, recent strong US data and aggressive remarks by Fed officials hurt such odds.
European Rates
Several ECB officials opposed early interest rate cuts in May as inflation continues to present serious risks.
ECB President Christine Lagarde said at the Davos Economic Forum that euro zone interest rates could be cut in the summer and not spring.
Dr Joachim Nagel, President of the Deutsche Bundesbank, Member of the Governing Council of the European Central Bank, said it's still too early to talk about rate cuts as inflation remains too high.
Robert Holzmann, Governor of Austria's Central Bank, said that Middle East geopolitical tensions and shipping disruptions in the Red Sea constitute a big inflation threat.
US rates
Recent US data showed retail sales rose past expectations in December, as unemployment claims fell to 11-month lows in a sign of strong conditions.
Fed member Christoper Waller also said on Tuesday that US economic strength gives policymakers flexibility in deciding the timeline of interest rate cuts.
Following the data and remarks, the odds of a Fed 0.25% interest rate cut at the March meeting tumbled from 75% to 55%.
Disclaimer: The copyright of this article belongs to the original author. Reposting this article is solely for the purpose of information dissemination and does not constitute any investment advice. If there is any infringement, please contact us immediately. We will make corrections or deletions as necessary. Thank you.
