The EUR/USD rate is the lowest since February 20, breaking technical support at 1,08

This week provided largely secondary data from the US economy. Only tomorrow's report on Americans' spending may arouse a bit more emotion, although we should not expect a major surprise here, because some time ago we learned the CPI readings for the United States, which were slightly higher. Yesterday Wall Street stock indices gained, and the Dow Jones increased by as much as 1,2%..

This morning the euro is losing due to worse retail sales data in Germany. EUR / USD exchange rate breaks down technical support at 1,08.

Everything speaks for the strengthening of the dollar

Nevertheless, higher readings of the PCE and PCE core indicators will strengthen the dollar and perhaps today's descent of the main currency pair below 1,08 will prove to be permanent, at least for some time. It is true that June is the likely date of the first Fed rate cut at this point, but higher inflation readings will mean that the market may reduce the chances of such a scenario happening in its valuation. Declarations from the Federal Reserve may still strengthen the dollar, supporting higher rates for a longer period of time. Just yesterday, the stronger "green" could have been influenced by the words of Fed Governor Christopher Waller at the Economic Club in New York, which clearly suggested that there is still no rush to reduce the cost of money.

Today, the final reading deserves attention CBA from the USA for the fourth quarter of 2023 as well as consumer sentiment reported by the University of Michigan. As usual, we will also get weekly data from the labor market.

Riskbank less cautious

Yesterday, the central bank of Sweden kept the main interest rate at 4%, but at the same time signaled a reduction in May or June conditioned by favorable inflation prospects. It can be seen that the Riksbank is definitely less cautious than the Fed or the ECB and provides specific dates for a possible easing of monetary conditions. The institution already made the change in February, when the reductions in the first half of this year were announced. In its new report on monetary policy, the bank only translated this change into facts and figures. While in November he still saw an interest rate of 4,10%. at the end of 2024, now signals three steps down by 25 basis points. Looking further ahead, the institution currently sees the level of the cost of money at the end of 2025 a full percentage point lower than the estimates indicated in November 2023. Inflation and economic growth for this year have been revised upwards.

The Swedish krona has been on the defensive since the bank's February meeting, so it is clear that the market has already discounted the "dovish" return to some extent. The depreciation of the SEK continues today and the EUR/SEK pair shows a level of 11,54 - the highest since mid-November last year. Of course, it may also happen that if the data for March, which will be released before the May meeting, do not clearly show that price pressure continues to decline, then the Riksbank may not reduce rates until June. By then, the numbers for April and May will be known, so the picture of disinflation dynamics will be a bit clearer. In such a scenario, the crown would make up for some of the losses incurred in recent weeks.

Source: Łukasz Zembik, OANDA TMS Brokers