Euro Weakens Amid Soft CPI Figures and Declining US Yields

Global markets are displaying a mixed sentiment today as investors prepare for the highly anticipated reciprocal tariff announcement from the United States tomorrow. Asian stock markets saw a moderate recovery following Monday’s declines, while European indexes opened slightly higher. Nonetheless, US futures have started to experience renewed pressure.

Gold has continued to attract attention, maintaining its upward momentum amid the uncertainty in the markets. The precious metal is approaching the 3150 mark as investors flock to safe-haven assets during these turbulent times.

The currency exchange market has been marked by caution and activity. There has been noticeable selling pressure on the Euro and the British Pound, with the Euro being hit particularly hard due to the release of lower-than-expected Eurozone core Consumer Price Index (CPI) data. The British Pound is also experiencing weakness, alongside the Canadian Dollar.

Conversely, the Japanese Yen and the Swiss Franc have gained strength, benefiting from the increased risk-off sentiment among investors. The US Dollar remains stable, showing mixed performance across the board. Meanwhile, the Australian and New Zealand Dollars are maintaining their positions, supported by resilient manufacturing data from China.

According to reports from The Washington Post, the Trump administration is still deliberating various options for its tariff imposition. These considerations range from a broad 20% tariff on most imports to a more tailored approach based on a "reciprocal" model by country. Although nothing has been conclusively decided yet, the implications of such a measure could drastically affect global supply chains. Investor sentiment remains cautious until there is more clarity on possible exceptions and reactions from key trade partners, including the EU, China, and Canada.

Eurozone Inflation Data Shows Easing Pressures

The Eurozone's headline CPI eased slightly from 2.3% year-on-year to 2.2% in March, aligning with market expectations. The core CPI, which excludes energy, food, alcohol, and tobacco, dropped from 2.6% to 2.4%, falling short of the forecast of 2.5%.

Breaking down the components, the service sector continued to be the primary contributor, though it moderated to a 3.4% increase from 3.7%. Meanwhile, the prices of food, alcohol, and tobacco nudged upward to 2.9% from 2.7%. Non-energy industrial goods remained stable at 0.6%, while energy slipped further into negative growth territory at -0.7%.

Manufacturing PMI Shows Mixed Signals

The final PMI reading for Eurozone manufacturing reached 48.6 in March, indicating a 26-month high for the sector. The output index surpassed the 50-point mark, hitting 50.5 for the first time since March 2023, suggesting some recovery. Despite still being in contraction territory, the three-month upward trend in the headline PMI hints that the worst may be behind the sector.

Regional performance varies, with Greece leading at 55.0, while Italy and Austria lagging below 47. Germany and France, two of the largest economies in the Eurozone, reported improvements at 48.3 and 48.5, respectively.

Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted that some of the improvements may relate to US companies stocking up on orders in anticipation of the impending trade tensions, suggesting that such boosts might not last in the coming months.

UK and Global Manufacturing Weakness

In the UK, the PMI Manufacturing index for March was finalized at 44.9, down from 46.8 in February, marking the lowest level in 17 months. This indicates broad weakness in the UK manufacturing sector, characterized by significant declines in output, new orders, and exports.

Rob Dobson from S&P Global highlighted that new business inflows have seen one of the steepest drops since the pandemic-induced lockdowns in 2020. Manufacturers in the UK face multiple challenges, such as faltering domestic demand, rising costs, and geopolitical tensions affecting international trade.

Responses from Central Banks

The Reserve Bank of Australia (RBA) held its cash rate target steady at 4.10%, following expectations across the board. Despite observing a decrease in underlying inflation, the RBA underscored a cautious outlook due to uncertainties surrounding domestic consumption and labor market conditions. Furthermore, escalating US tariff policies contribute to these global uncertainties.

In Japan, the Q1 Tankan survey revealed mixed results, with large manufacturers becoming more cautious for the first time in a year amid rising costs and weak global demand. However, the resilience of the services sector saw a notable index rise to its highest level since 1991, revealing a complex picture of Japan's economic landscape.

Market Outlook for the Euro

Currently, the Euro continues to decline slightly but remains above key support levels. The intraday bias remains neutral, suggesting potential volatility in the near future as market participants assess developments related to tariffs and inflation data.

The broader outlook suggests that while current price movements may suggest some corrective behavior, sustained recovery is still highly possible if market conditions stabilize and global economic indicators show positive trends.

Euro, CPI, Manufacturing