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Euro is trying to extend its gains today as inflation slows less than expected in the Eurozone and bond yields force it to pause

Today's market analysis on behalf of Samer Hasn Market Analyst and part of the Research Team at XS.com

 

March 1, 2024 (Investorideas.com Newswire) Euro was able to continue recording the gains that it began recording in the early morning hours, by 0.11% against the US dollar, after reaching its lowest levels about ten days ago yesterday.

The euro received support from the less than expected slowdown in inflation in the Eurozone in February, as it may encourage monetary policy makers to adhere to their hawkish stance, but the decline in the region's bond yields curbed those gains.

Inflation slowed less than expected to 2.6% from 2.8% in January, versus expectations of 2.5% on an annual basis. While core inflation was at its slowest pace in nearly two years at 3.1%, this reading was higher than expected at 2.9%.

Today's inflation reading force real bond yields remains in the negative zone, and this does not help monetary tightening expand the scope of its impact by raising real borrowing costs.

Today's figures also do not serve the hope of a faster than currently expected cut in interest rates over the course of the current year, in conjunction with the upward risks of inflation.

It seems that fears of inflation returning to rise are exacerbated today, with the conflict in the Middle East accelerating in a frightening manner, which does not suggest any approaching solution to the raging war, but rather the threat of its expansion.

However, the bond market appears to be pricing in a different direction today, as despite the slower-than-expected inflation growth, we have seen Eurozone bond yields fall to their lowest levels since the beginning of the week. This decline in bond yields may suggest that markets may be holding out hope for a rate cut of at least by 50 basis points this year.

The yield on ten-year German bund is approaching the level of 2.400%, after reaching its highest level this year at 2.513% yesterday.

Also today, we witnessed the final reading of manufacturing PMI in the Eurozone. S&P Global reports confirmed that there were some positive signs about the possibility of recovery in manufacturing activities last February, in light of the decline in new orders and purchasing activities at the slowest pace in about a year.

In contrast, reports confirmed that factory activities in Germany accelerated in February for the first time in seven months. While this acceleration in contraction caused more job losses in factories in light of the decline in activities and low confidence about the future.

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