- EUR/USD rebounds as the US Dollar eases from intraday highs.
- Weak US consumer sentiment contrasts with rising inflation expectations.
- Markets reassess interest rate outlook amid elevated Oil prices and geopolitical risks.
EUR/USD edges higher on Friday after early weakness, as the US Dollar (USD) pulls back from intraday highs, offering some support to the Euro (EUR). At the time of writing, the pair trades around 1.1545, recovering from a daily low at 1.1501.
The pullback in the US Dollar appears largely technical, as buyers take a breather following a strong rally earlier this week that pushed the US Dollar Index (DXY) above the key 100.00 psychological level.
The index, which tracks the Greenback against a basket of six major currencies, is currently hovering near 99.85, reflecting a modest pause in upside momentum. However, it remains on track for weekly gains, staying broadly supported amid ongoing Middle East tensions.
On the data front, the University of Michigan figures came in weaker than expected. The Consumer Sentiment Index fell to 53.3 in March, down from the preliminary estimate of 55.5. The Consumer Expectations Index also declined to 51.7 from 54.1.
At the same time, inflation expectations moved higher. The 1-year outlook rose to 3.8% from 3.4%, while the 5-year expectation stayed at 3.2%.
Richmond Fed President Thomas Barkin said higher gasoline prices are weighing on consumer sentiment and could crowd out other spending. He added that even before the recent oil shock, progress on inflation was at risk of stalling. Barkin also noted that while the unemployment rate remains low, the labor market still feels fragile, highlighting risks to both sides of the Fed’s dual mandate.
On the geopolitical front, the lack of fresh headlines has kept trading conditions relatively calmer on Friday compared to earlier this week, when conflicting signals around potential US-Iran negotiations drove volatility. US President Donald Trump announced a delay in planned military strikes targeting Iran’s energy infrastructure. The deadline, initially set to expire on Friday, has now been extended by 10 days.
However, with no clear signs of a resolution yet and the Strait of Hormuz largely closed, Oil prices remain elevated, continuing to fuel inflation concerns. This is prompting markets to reprice the interest rate outlook, with traders now pricing in 2-3 European Central Bank (ECB) hikes by year-end, while expectations for Federal Reserve (Fed) rate cuts are being trimmed, with some even seeing the possibility of a hike later this year.
