EUR/USD penetrates 200-day average after Bundesbank President’s comments.

EUR/USD pierces below the key 200-day SMA on Friday after Bundesbank’s Nagel raises prospect of an early interest-rate cut.
The pair comes off its lows in the last hour, however, supported by positive German IFO Business Sentiment data.
EUR/USD is poised to extend breaks below key support levels as key central bank figures line up to speak.

EUR/USD is trading down almost half a percent on Friday, in the lower 1.0800s, below the 200-day Simple Moving Average (SMA), after comments from the President of the Bundesbank Joachim Nagel, suggested the European Central Bank (ECB) could be in a position to cut rates before the summer recess.

The pair continues to paint trader’s screens red, with even positive German IFO data – which hits a 9-month high – only managing to administer a “band aid” temporarily steming the bleeding after its release.

EUR/USD bleeds lower on Nagel statement

EUR/USD was delivered a body blow on Friday during the European session after President of the Bundesbank, Joachim Nagel said he foresaw the ECB potentially cutting interest rates before the summer recess, which was interpreted as meaning most likely in June.

“If I would put it into probabilities, definitely something in June has a higher probability than in April.” Said Nagel, according to Reuters.

Markets forecast 89 basis points of rate cuts, or at least three but possibly four 25 basis-point moves, with the first coming in June or July.

The Bundesbank President stressed an initial cut would not imply subsequent moves. The ECB would make decisions on a meeting by meeting basis as fresh data became available.

His most recent comments suggested he is concerned about “Europe’s growth prospects more than his homeland” and back in February, he said the governing council should wait for Q2 wage data before deciding on whether to cut interest rates or not.

Nagel was speaking at a webcast on “monetary policy challenges and the economic outlook for the Eurozone and Germany,” according to the economic calendar.

EUR/USD comes off lows after German IFO data hits 9-month high

EUR/USD managed to stem its bleed lower on Friday, but only temporarily after strong German sentiment data improved the outlook for the country.

The headline German IFO Business Climate Index arrived at 87.8 in March, higher than the February reading of 85.5, much above the market consensus of 86.0.

Meanwhile, the Current Economic Assessment Index rose from 86.9 in February to 88.1 in the reported month, beating expectations of 86.8.

The IFO Expectations Index – indicating firms’ projections for the next six months, edged higher to 87.5 in March vs. 84.1 recorded in the previous month while surpassing the expected 84.7 figure.

EUR/USD bounced off the 1.0808 session lows after the release of the data, but only recouped losses marginally.

EUR/USD: A day of doves and hawks

The key drivers for the pair at the end of the week will probably be commentary from central bankers.

Their comments could impact the outlook for interest rates, which are set by central banks. Interest rates impact currencies because they dictate the level of foreign capital inflows from investors searching for returns. When interest rates are expected to go up it is positive for a currency; when down negative. Currently, the debate hinges around the timing of future rate cuts, with the consensus being that both the ECB and the Fed will make cuts in June. Anything that deviates from that view could cause volatility.

At 13:00 GMT, Federal Reserve Chairman Jerome Powell will participate in a “Fed Listens” panel about current economic conditions and how Covid impacted the economy. Vice-Chair Philip Jeffereson and Governor Michelle Bowman will also be at the event.

At 16:00 GMT, Federal Reserve Vice-Chair for Supervision Michael Barr will participate in a virtual discussion titled “International Economic and Monetary Design”.

At 17:00 GMT , ECB Chief Economist and Board Member Philip Lane will deliver a policy lecture on inflation and monetary policy at the Aix-Marseille School of Economics (AMSE). At 20:00 GMT, Federal Reserve Bank of Atlanta President Raphael Bostic will moderate a conversation about household finances at the 2024 Household Finance Conference – there is an outside chance he could mention interest rates