Euro Dips Amid Inflation Data and Looming Tariff Deadlines

The euro fell slightly following lower-than-expected European inflation data as traders anticipated U.S. tariffs and associated market impacts. Both the euro and dollar saw fluctuations due to geopolitical events and economic trends. Market attention focuses on approaching U.S. tariff announcements and inflation data to gauge future economic directions.

The euro experienced a small decline on Friday after European inflation data emerged lower than expected, coinciding with the approach of a U.S. tariff deadline. Concurrently, the dollar rose slightly as investors awaited additional U.S. price indices later in the day.

Data revealed that inflation rates in France and Spain did not meet analysts' forecasts for March. This development prompted traders to increase their speculation on potential European Central Bank rate cuts, especially as separate figures indicated a dip in French consumer spending and a rise in Germany's unemployment rate.

Meanwhile, the euro, despite falling 0.22% to $1.0778 at last check, maintains a 3.8% gain for the month. This comes in the wake of Germany's significant borrowing plan aimed at ramping up defense spending and amid concerns over U.S. economic growth, which have tempered the dollar's value.

Investors remain vigilant toward the looming April 2 deadline. U.S. President Donald Trump is expected to unveil reciprocal tariffs on major trade partners. Earlier, he had declared a 25% tariff on imported vehicles set to commence next week. This tariff uncertainty has influenced market behavior, as explained by Mohit Kumar, a senior economist at Jefferies.

On the currency front, the U.S. dollar index, which measures the greenback against six key currencies, edged up 0.13% to 104.38. However, it is still projected to end the month with a 3% drop, its largest since November 2023, amid worries about Trump's erratic tariff strategies potentially hurting the U.S. economy.

Traders are now pivoting their focus to the U.S. personal consumption expenditures index inflation data—considered the Federal Reserve's favored inflation metric—with expectations of a steady rate of 2.5% year-over-year in February.

Furthermore, market dynamics indicate roughly 63 basis points of anticipated rate cuts by the Fed this year, contingent on forthcoming data. The dollar's depreciation by 0.3% against the yen, trading at 150.63, is buoyed by persistent inflation in Tokyo, as noted by Derek Halpenny, head of research at MUFG.

(With inputs from agencies.)