Softer EZ CPI enables dovish outlook on the ECB, EUR/USD holds steady

Consumer prices in the Eurozone dropped more than expected in March leading to higher chances of an ECB cut in April.
By Daniela Hathorn

Inflation in the Eurozone continued its downward trajectory in March, reinforcing expectations of further monetary easing from the European Central Bank (ECB). Data released on Tuesday showed headline Consumer Price Index (CPI) growth slowed for a second consecutive month, falling from 2.3% to 2.2% year-over-year—in line with market forecasts. Meanwhile, core CPI—which strips out volatile components like food and energy—declined more than expected, from 2.6% to 2.4%, marking the lowest annual growth since February 2022.

ECB Dovish Bias Supported by Data

The softer inflation data has bolstered market expectations for a 25-basis point rate cut at the ECB’s upcoming policy meeting. While President Christine Lagarde has remained cautious in her forward guidance, the data gives the central bank additional room to prioritize growth without abandoning its inflation mandate.

Lagarde recently acknowledged the risks to Eurozone growth stemming from global trade tensions, suggesting a potential 0.3 percentage point hit if a trade war with the US escalates. These concerns may encourage the ECB to stay on a gradual but steady path toward monetary easing.

That said, the month-over-month increases in both headline and core CPI highlight lingering price pressures, particularly in certain sectors. This complexity may keep the ECB’s tone measured as it seeks flexibility in its policy approach moving forward.

Markets Respond Positively to ECB Caution

So far, markets appear to be endorsing the ECB’s proactive stance. European equities have had a strong start to the year, supported by a rotation out of US stocks amid concerns over US fiscal sustainability and relatively more attractive valuations in Europe. Germany’s pledge to boost defence spending has also buoyed investor sentiment.

EUR/USD Technical Picture: Resilience with Limits

The euro has remained resilient despite narrowing rate differentials. Confidence in the ECB’s strategic approach has helped offset some of the bearish pressures on the currency. EUR/USD attempted a downside breakout below a double-top pattern but quickly found support at the 200-day simple moving average (SMA) near 1.0730, helping the RSI stay above the 50 mark.

Despite this bounce, the bullish momentum appears limited in the short term. The 1.0845–1.0850 resistance zone is capping upside potential, especially as markets brace for fresh tariff announcements during "Liberation Day." A more aggressive US tariff policy could drive EUR/USD back toward the 1.0730 support level.

EUR/USD daily chart

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