EUR/USD Trades Near 1.0780 as Dovish Remarks from ECB Members Extend Losses

The EUR/USD continues its fourth consecutive day of decline, propelled by a stronger US Dollar (USD) and expectations of protracted interest rate hikes, both of which are influenced by hawkish market sentiment surrounding the Federal Reserve (Fed). This sentiment shift is substantiated by recent robust economic indicators originating from the United States (US). During the Asian trading hours on Friday, the EUR/USD pair edges lower to near 1.0780.

The US Dollar Index (DXY) approaches 104.60, bolstered by a Federal Reserve (Fed) official's hawkish remarks that supported the Greenback. Governor of the Federal Reserve Christopher Waller's remarks on Wednesday suggested that interest rate reduction might be postponed in light of the robust inflation figures. As the Fed's preferred inflation gauge, the US Personal Consumption Expenditures (PCE) report is currently awaited by investors on Friday in order to obtain further guidance and information.

The annualized growth rate of the US Gross Domestic Product (GDP) for the fourth quarter of 2023 was 3.4%, exceeding market expectations of a 3.2% increase. Consistent with expectations, the US Gross Domestic Product Price Index remained unchanged at 1.7% in the fourth quarter.

In the same period, US Core Personal Consumption Expenditures (QoQ) decreased to 2.0%, which was marginally lower than the previous and anticipated estimate of 2.1%. Furthermore, initial jobless claims in the United States experienced a decline to 210,000 for the week ending March 22, which deviated from the anticipated increase to 215,000 from the preceding 212,000.

As a result of dovish remarks made by European Central Bank (ECB) policymaker Francois Villeroy, the Euro encounters difficulties. Villeroy observed a substantial reduction in core inflation, although it continues to be elevated. While acknowledging the feasibility of the ECB's 2% inflation target, he cautioned against escalating negative consequences should the ECB abstain from reducing interest rates.

In addition, Fabio Panetta, a member of the ECB executive board, declared on Thursday that "the circumstances are coming together for the initiation of monetary policy easing." It was emphasized by him that stringent policies are inhibiting demand, which is resulting in an abrupt decline in inflation. Additionally, Panetta stated that price stability hazards have diminished.