On March 23, multiple European Central Bank officials issued hawkish signals, increasing the likelihood of an interest rate hike in April. Gabriel Makhlouf, a member of the ECB Governing Council and Governor of the Central Bank of Ireland, expressed cautious but clear intentions in an interview with Bloomberg Television. He stated that he "fully understands" market expectations for two rate hikes this year—aligning with the ECB's baseline scenario—but emphasized that policy decisions would remain calm and prudent. "If the data indicates that we must act, we will absolutely act," he said, "but ultimately, it depends on the data. We have six weeks until the next decision, which is a long time given the current pace of developments." Makhlouf also noted that the ECB's current policy stance does not lean toward tightening but that the bank is monitoring energy prices "very closely" and will respond as needed to achieve the 2% price stability target. In contrast, Nagel's remarks were more direct: "Given the current situation, it is foreseeable that the medium-term inflation outlook could worsen and inflation expectations could rise persistently, making a more restrictive monetary policy stance likely necessary."
Meanwhile, Federal Reserve Governor Christopher Waller indicated that caution is warranted when assessing the direction of monetary policy, but if the labor market continues to weaken, he may advocate for interest rate cuts later this year. In a Friday interview with CNBC, Waller stated, "Caution is necessary. This does not mean I will remain inactive for the rest of the year. I just want to see how the situation evolves. If conditions remain acceptable and the labor market continues to soften, I will again start advocating for a reduction in policy rates later this year." This statement leaves room for future policy adjustments and keeps market expectations for rate cuts this year in focus. Waller also pointed out that the closure of the Strait of Hormuz signals greater inflationary pressures, as rising oil prices could eventually affect core inflation. He emphasized that the current cautious approach does not imply inaction for the remainder of the year.
Key data to watch today include the U.S. monthly construction spending for January and the preliminary Eurozone consumer confidence index for March.
**USD Index** The U.S. dollar index edged higher with slight gains on Friday, currently trading around 99.60. Short covering provided some support, while renewed expectations of Fed rate hikes were the primary driver of the rebound. However, hawkish signals from several central banks limited the index's upward momentum. Resistance is seen near 100.00, with support around 99.00.
**EUR/USD** The euro declined modestly on Friday, currently trading near 1.1560. Profit-taking and technical selling pressure around the 1.1600 level contributed to the decline, while a stronger U.S. dollar, supported by short covering and revived Fed rate hike expectations, added downward pressure. Nevertheless, recent hawkish signals from the ECB limited further losses. Resistance is observed near 1.1650, with support around 1.1450.
**GBP/USD** The British pound also saw a slight decline on Friday, trading around 1.3340. Profit-taking and a stronger U.S. dollar, driven by short covering and renewed Fed rate hike expectations, were the main factors pressuring the pound. However, solid economic data from the U.K. and recent hawkish remarks from the Bank of England helped curb additional declines. Resistance is near 1.3450, with support around 1.3250.
Comments