Euro Weakens Amid Soft Inflation Data and ECB Rate Cut Expectations

The euro declined against major currencies in the European session on Tuesday, as weaker-than-expected Eurozone inflation data for March reinforced expectations for another interest rate cut by the European Central Bank (ECB) later this month.

Eurozone Inflation Trends

According to Eurostat, the Harmonized Index of Consumer Prices (HICP) rose 2.2% year-on-year in March, slightly below February’s 2.3% increase. The figure aligned with market expectations.

Core inflation, which excludes food, alcohol, and tobacco, slowed to 2.4% from 2.6% in the previous month. Analysts had forecast a marginal slowdown to 2.5%.

• Food price growth accelerated to 2.9% from 2.7%.

• Energy prices fell 0.7%, reversing February’s 0.2% increase.

• Services costs rose at a slower pace of 3.4%, compared to 3.7% previously.

• Non-energy industrial goods prices remained steady at 0.6%.

On a monthly basis, the HICP increased 0.6% in March. Final inflation data will be released on April 16.

Global Trade & U.S. Tariff Developments

Market participants remain divided on whether President Donald Trump's proposed tariffs could trigger a U.S. recession.

White House press secretary Karoline Leavitt stated, "Wednesday will be Liberation Day in America, as President Trump will announce a tariff plan aimed at reversing unfair trade practices that have hurt the country for decades. This is in the best interest of the American worker."

In response, European Commission President Ursula von der Leyen indicated that the European Union remains open to negotiations but will not hesitate to retaliate if necessary.

"We will approach these negotiations from a position of strength. Europe holds key advantages in trade, technology, and market size. However, we are also prepared to take firm countermeasures if required. All instruments are on the table," she asserted.

Eurozone Economic Data & Currency Movements

The HCOB Eurozone Manufacturing PMI for March 2025 was reported at 48.6, slightly below the preliminary estimate of 48.7, but up from February’s final reading of 47.6.

In European trading, the euro depreciated against key currencies:

• Pound sterling (GBP): Dropped to 0.8356 from an early high of 0.8376. Further declines could test support near 0.81.

• Swiss franc (CHF): Fell to 0.9523 from 0.9564, with potential support around 0.91.

• U.S. dollar (USD): Slipped to 1.0791 from 1.0831, possibly testing support near 1.03.

• Japanese yen (JPY): Declined to 161.26 from 162.30, with downside risks toward 155.00.

Upcoming Economic Releases

Looking ahead, market attention shifts to key economic reports in the New York session, including:

• U.S. & Canada S&P Global Manufacturing PMI (March)

• U.S. Construction Spending (February)

• U.S. ISM Manufacturing New Orders (March)

• U.S. Dallas Fed Services Index (March)

With inflation easing and tariff tensions rising, currency markets are expected to remain volatile as investors monitor developments in monetary policy and global trade.