On March 4th, data released by Eurostat on Tuesday showed that consumer prices in the Eurozone rose 1.9% year-on-year in February, up from 1.7% in January and exceeding analyst expectations of 1.7%. Core inflation, which excludes food and energy, also rebounded more than expected to 2.4%, while services inflation climbed to 3.4%. Concurrently, military actions involving Iran are unsettling oil and gas markets and elevating risks of imported inflation. European natural gas prices have surged over 70% since last Friday's close, and the global benchmark Brent crude oil has risen above $80 per barrel. On the policy front, European Central Bank Chief Economist Philip Lane stated in a Financial Times interview published Tuesday that the central bank will "closely monitor developments." Subsequently, bets on interest rate hikes in the derivatives market increased, with Bloomberg data indicating traders now price in roughly a 50% probability of a 25-basis-point ECB rate hike within the year.
Additionally, Minneapolis Fed President Neel Kashkari said on Tuesday that the conflict with Iran has increased uncertainty regarding the U.S. economic outlook, making the Federal Reserve's monetary policy and interest rate path harder to predict. Speaking at an event, Kashkari noted, "Just a few days ago, before the joint U.S.-Israel strikes on Iranian targets began, I was quite confident about the economic outlook." As a voting member this year on the Federal Open Market Committee (FOMC), Kashkari mentioned he had previously anticipated that persistent disinflation through 2026 would create conditions for the Fed to implement one interest rate cut. Discussing monetary policy now, he said, "We need to observe how long-lasting and how significant the impact of this new shock – potentially a new variable affecting the global economy – will be." "I think the Fed and the markets are currently pondering the same questions: How long will this conflict last? How severe could the situation become? Will it be more akin to the Russia-Ukraine conflict, or more like the Hamas attack on Israel? All of this will have implications for monetary policy," Kashkari added.
Key data to watch today includes the UK S&P Global Services PMI Final for February, the Eurozone Harmonised Index of Consumer Prices (HICP) year-on-year for February, the Eurozone Unemployment Rate for January, the US ADP Employment Change for February, the US Durable Goods Orders Monthly Revision for January, and the US ISM Non-Manufacturing PMI for February.
Dollar Index The Dollar Index rose significantly yesterday, breaking through the 99.00 level to reach a new 4-month high. The index is currently trading around 99.30. Besides safe-haven demand driven by Middle East tensions providing strong support, renewed market expectations for Federal Reserve interest rate hikes also contributed significantly to the index's climb. Furthermore, rising U.S. Treasury yields provided additional support. Today, focus is on resistance near 99.80, with support located around 98.80.
EUR/USD The euro declined in a volatile session yesterday, briefly falling below the 1.1600 mark to hit a new 4-month low, and is currently trading around 1.1590. The primary factor pressuring the euro lower was the strengthening U.S. dollar, which was buoyed by safe-haven demand, renewed Fed rate hike expectations, and rising U.S. bond yields. However, better-than-expected CPI data from the Eurozone released during the session limited the pair's downside. Today, resistance is observed near 1.1700, while support lies around 1.1500.
GBP/USD The British pound moved lower in choppy trading yesterday, briefly dipping below the 1.3300 level to touch a fresh 3-month low, and is currently trading around 1.3320. The main downward pressure came from the U.S. dollar's strength, as the Dollar Index broke above 99.00 supported by factors including revived Fed rate hike expectations and safe-haven buying. Additionally, investor expectations for potential Bank of England rate cuts and concerns about UK political uncertainty also exerted some downward pressure on the pair. Today, resistance is seen near 1.3400, with support around 1.3200.
