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30 April 2024 | FXGT.com

Eurozone Surpasses Growth Expectations: Implications for ECB Monetary Policy

  • EU Inflation Rates: According to the latest Eurostat data, inflation in Europe held steady at 2.4% in March, aligning with market expectations. More notably, the core inflation rate, which excludes volatile items like food and energy, decreased slightly to 2.7% from 2.9%.
  • Eurozone GDP Growth: The Eurozone’s economy expanded by 0.3% in the first quarter of the year, outperforming expectations of a modest 0.1% growth. The year-on-year figure also exceeded expectations at 0.4%. This growth rate is the highest recorded since the third quarter of 2022, suggesting a significant recovery from the sluggish performance observed during 2023.
  • Implications for ECB Policy: The recent economic recovery and slowing decline in inflation rates may reduce the urgency for aggressive rate cuts from the European Central Bank (ECB) beyond the expected reduction in June. ECB policymakers have recently voiced support for initiating rate cuts in June, though subsequent policy actions appear more uncertain.
  • Monetary Policy Divergence: With the European Central Bank potentially lowering rates in June, and the U.S. Federal Reserve not expected to reduce rates until at least September, the differing approaches of these central banks could lead to increased volatility in the EUR/USD pair. This divergence in monetary policy timelines may significantly impact currency valuations and trading dynamics.
  • Upcoming Economic Events: Market participants are gearing up for the release of the U.S. ADP Employment Change and ISM Manufacturing PMI, which are expected to provide further insights that could influence the Federal Reserve’s policy outlook. Additionally, market attention remains focused on tomorrow’s Federal Reserve press conference, with expectations leaning towards a more hawkish stance from Chair Jerome Powell.
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