EUR/USD declines to near 1.0770 as ECB officials hint at a potential rate cut in June

• EUR/USD continues to lose ground on dovish remarks from ECB members.
• German Retail Sales MoM and YoY declined by 1.9% and 2.7%, respectively, in February.
• Investors await the US PCE figures to gain further insight into the Fed’s interest rates trajectory.

EUR/USD maintains its position around 1.0770 during the European session on Friday, extending losses for the fourth consecutive day. However, trading volumes are light as market participants are likely observing Good Friday. The Euro faces downward pressure as European Central Bank (ECB) officials are increasingly suggesting a probable interest rate cut in June.

Additionally, the Euro faced downward pressure following weaker-than-expected Retail Sales data from Germany. The monthly report revealed a 1.9% decline in the sales of the German retail sector in February, contrary to expectations of a 0.3% increase following a previous decline of 0.4%. Additionally, year-over-year Retail Sales fell by 2.7%, surpassing the anticipated decline of 0.8% and the previous decrease of 1.4%.

Yannis Stoumaras stated on Tuesday that there is a growing consensus within the ECB for a rate reduction in June. ECB policymaker Francois Villeroy observed a rapid decrease in core inflation, although it remains elevated. He indicated that achieving the ECB’s inflation target of 2% is feasible, but cautioned against growing downside risks if the ECB opts not to reduce rates. Additionally, ECB executive board member Fabio Panetta emphasized that restrictive policies are dampening demand and causing a rapid decline in inflation.

The US Dollar Index (DXY) strengthens, nearing 104.60, as recent data indicates annualized economic expansion in the United States (US), driven by consumer spending. In the fourth quarter of 2023, US Gross Domestic Product (GDP) Annualized expanded by 3.4%, surpassing market expectations of remaining unchanged at a 3.2% increase. US Core Personal Consumption Expenditures (QoQ) for the same period came in at 2.0%, slightly below the expected and previous reading of 2.1%.

The hawkish statements from a Federal Reserve (Fed) official, reinforced the Greenback. Fed Governor Christopher Waller’s comments on Wednesday hinted at a potential delay in interest rate cuts, given the strong inflation figures. Investors now await the US Personal Consumption Expenditures (PCE) report on Friday, which serves as the Fed’s preferred inflation gauge, to gain additional insight and guidance.