After recently dropping back below the 1.090 mark, the euro’s next upward move might have to pause until Russia officially agrees to a 30-day ceasefire with Ukraine. However, this development may not provide a significant or lasting boost for the euro since the market has already largely priced in a peace agreement. Moreover, any deal would need to be evaluated for its longer-term consequences on both Ukraine and the EU, according to Francesco Pesole, an FX analyst at ING.
### Decline to 1.080 Seems More Probable
From a macro perspective, today’s release of January’s industrial production figures for the eurozone is unlikely to shake the markets. There’s also keen interest in ECB members’ statements following last week’s rate cut. Christine Lagarde, the President of the ECB, remarked yesterday that global trade dynamics would make consistently achieving 2% inflation impossible for the ECB. This statement potentially opens up discussions on whether the ECB might need to reconsider its inflation target. Practically, an unofficial shift has already occurred, and plans for fiscal expansion in Germany have so far prevented interest rates from dropping to or below the 2% mark, in our opinion.
Speaking of which, investors are watching for potential announcements of a broad-based agreement on Germany’s defense and infrastructure spending. Just a couple of days ago, the Green Party indicated they anticipated reaching a deal with the incoming Chancellor, Friedrich Merz, by week’s end. An official announcement might give the euro a slight boost, although it seems the markets have largely anticipated this outcome.
As we look towards the end of March, our perspective holds that a decline to 1.080 is more probable than seeing another surge to 1.10 in the EUR/USD exchange rate.
