Investors React to European Inflation Data and Upcoming U.S. Trade Measures
The euro fell on Friday following weaker-than-expected inflation data from Europe, while the U.S. dollar saw gains as markets awaited key inflation figures from the United States and monitored upcoming trade policies.
New reports showed that inflation in France and Spain was lower than anticipated in March, reinforcing expectations that the European Central Bank (ECB) may proceed with further interest rate cuts. Additionally, economic data indicated a drop in French consumer spending and a slight rise in Germany’s unemployment rate.
As a result, the euro slipped 0.28% to $1.0772 but remained up by approximately 3.8% for the month, supported by Germany’s announcement of significant borrowing plans aimed at strengthening defence spending.
Meanwhile, market attention was also focused on U.S. trade policies, with President Donald Trump set to announce new tariffs on major trading partners by April 2. Earlier in the week, Trump confirmed a 25% tariff on imported cars and light trucks, set to take effect next week.
“Markets remain cautious as they await further details on tariffs,” said Mohit Kumar, senior economist at Jefferies. “We anticipate that the announcement could lead to negotiations, potentially reducing the final impact on global trade.”
Dollar Performance and Inflation Outlook
The U.S. dollar index, which measures the currency against six key counterparts, rose 0.22% to 104.47. However, the dollar was still on course for its steepest monthly decline—down 2.9%—since November 2023, amid concerns that ongoing tariff disputes could slow U.S. economic growth.
Investors were also looking ahead to the Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) index, which was scheduled for release at 12:30 GMT. Analysts expected annual inflation to hold steady at 2.5% in February.
Markets are currently factoring in around 63 basis points of interest rate cuts from the Federal Reserve this year, but a deviation from expected inflation figures could influence the central bank’s decision-making.
Yen and Sterling Movements
The U.S. dollar edged 0.13% lower against the Japanese yen, reaching 150.84 per dollar. The yen found support as Tokyo’s inflation data remained elevated, reinforcing expectations that the Bank of Japan could adjust its monetary policy stance.
According to Derek Halpenny, head of research at MUFG, the yen’s strength was also driven by investors seeking safe-haven assets amid uncertainty in global markets. “There are signs of increasing risk aversion, especially after the auto tariff announcements and ahead of further trade policy updates,” he noted.
Sterling weakened by 0.2% to $1.2923 after posting a 0.5% gain in the previous session. British officials remain optimistic that the UK could secure exemptions from some U.S. tariffs due to its relatively balanced trade relationship with the United States.
