EUR/USD tests strength of 1.0800 as Eurozone’s inflation remains stickier than consensus

• EUR/USD treads cautiously as the Eurozone’s inflation rises moderately in February.
• The annual headline and core inflation rose by 2.6% and 3.1%, respectively.
• The ISM Manufacturing PMI will guide the US Dollar for February.

The EUR/USD pair walks on thin ice near the crucial support of 1.0800 in Friday’s European session. The major currency pair exhibits a nominal decline as inflation in the Eurozone economy turned out more stubborn than expected in February.

The Eurostat reported that the preliminary annual Harmonized Index of Consumer Prices rose by 2.6% while investors anticipated to increase by 2.5%. In January, the inflation data was up by 2.8%. The monthly HICP grew strongly by 0.6% after contracting 0.4% in January.

The annual core inflation data, which excludes volatile items such as food and oil prices, grew at a higher pace of 3.1% against expectations of 2.9%, but the pace was lower than January’s reading of 3.3%. The monthly core inflation data rose 0.7% after deflating 0.9% in January.

The price pressures have grown moderately but remain higher than expectations. This would indicate that the progress in inflation declining towards the 2% target is slow, which could push back expectations of rate cuts by the European Central Bank (ECB) in the June policy meeting.

Meanwhile, the US Dollar turns sideways above 104.00 after a strong recovery as the expected decline in the United States core Personal Consumption Expenditure Price Index (PCE) data for January has capped market expectations for rate cuts by the Federal Reserve (Fed) in the June policy meeting.

In today’s session, investors will focus on the US ISM Manufacturing PMI for February, which will be published at 15:00 GMT. The expectations for the factory data show that it will come out at 49.5, higher than the prior reading of 49.1.

(The story was corrected at 11:22 GMT to say in the fourth paragraph that this would indicate that the progress in inflation declining towards the 2% target is slow, not 22%)