Traders in the foreign exchange market are bracing for volatility on Thursday as they await key economic indicators and political statements. The European Central Bank (ECB) is set to release its minutes, while the US Gross Domestic Product (GDP) revision looms large. Adding to the tension, US President Donald Trump's statements on tariffs remain unpredictable, casting a shadow over market sentiment. The GBP/USD pair continues to trade below 1.2700 in European trading, weighed down by a strong US Dollar and cautious investor mood.
The ECB is expected to support the economy by potentially lowering interest rates, responding to widespread disinflation. However, prices in the services sector continue to rise rapidly, complicating the inflation outlook. The ECB's ability to cut rates hinges on this inflation trajectory, with February showing signs of easing, particularly in France due to a marked reduction in regulated electricity prices. Meanwhile, Spain is set to release its preliminary Consumer Price Index (CPI) update for February today, followed by updates from France, Italy, and Germany tomorrow.
The EUR/USD pair also remains under pressure, trading below 1.0500 during European hours. The pair is affected by the broader strength of the US Dollar and concerns over Trump's tariff policies. The US Dollar has shown a sustained recovery, driven by conflicting messages from Trump on tariffs, which continue to unsettle markets. Meanwhile, in Europe, sentiment has been somewhat buoyed by hopes of a resolution to the ongoing conflict in Ukraine.
As traders navigate these turbulent waters, gold prices have also been affected. An uptick in US bond yields has contributed to a decline in gold prices, allowing the US Dollar to move away from a multi-month low. This dynamic reflects broader market concerns about economic stability and geopolitical uncertainties.