EUR/USD plummeted to fresh 2-month lows on the back of the acute rebound in the greenback after investors shifted their expectations to a larger rate hike by the Fed at the March gathering
In the meantime, price action around the European currency should continue to closely follow dollar dynamics, as well as the potential next moves from the ECB after the bank has already anticipated another 50 bps rate raise at the March event.
Back to the euro area, recession concerns now appear to have dwindled, which at the same time remain an important driver sustaining the ongoing recovery in the single currency as well as the hawkish narrative from the ECB.
Key events in the euro area this week: Germany Retail Sales/Industrial Production, EMU Advanced Q4 GDP Growth Rate, ECB Lagarde (Wednesday) – Germany Final Inflation Rate, ECB Lagarde (Friday).
Eminent issues on the back boiler: Continuation of the ECB hiking cycle amidst dwindling bets for a recession in the region and still elevated inflation. Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.
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