EUR/USD falls as US GDP shows economy losses momentum, inflation data in focus

The US Bureau of Economic Analysis (BEA) reported the second estimate of the Gross Domestic Product (GDP) for the last quarter of 2023, coming a tenth lower at 3.2% YoY compared to the 3.3% preliminary reading. Although the economy remains robust, recent data suggests the economy is losing momentum, as Retail Sales and Durable Goods Orders declined in January.

EUR/USD traders’ eyes are laser-focused on the release of the inflation figures for January. The Federal Reserve’s (Fed) preferred gauge for inflation is the Personal Consumption Expenditure (PCE). The consensus sees the PCE at 2.4% YoY and the Core PCE at 2.8%, with both cases slowing compared to December’s data.

If the data eases, look for a more aggressive re-pricing of rate cut expectations by the swaps market, which converged towards the Fed’s projections of three rate cuts towards the end of 2024.

Across the pond, the Eurozone economy is stagnating, as Economic Sentiment fell again in February, from 96.1 to 95.4, below estimates of an improvement to 96.7. According to ING analysts, “The eurozone economy has been stagnant since late 2022, and surveys have shown that there is no meaningful improvement happening in the first quarter.” In the meantime, traders would be eyeing the release of the latest inflation data from the Eurozone, with estimates for the Harmonized Index of Consumer Prices (HICP) at 2.5%, while core HICP at 2.9%.