The euro rose slightly to 1.1445 (+0.02%) against the dollar on 1 February, at the end of a trading week that saw new tensions in the international stock markets, mainly linked to new negative macroeconomic data related to the eurozone economy, in particular those of the PMI manufacturing index for several European countries, the official entry into recession of Italy and the new FED forward guidance, which has suddenly become more dovish than expected.
The Governing Council of the European Central Bank has declared the quantitative easing programme concluded at the end of the last year. The Eurozone inflation rate fell to +1.4% in January, from the previous +1.6%, while core inflation rose to +1.1%, from the previous +1.0%. Governor Mario Draghi said that the central bank will continue its expansionary monetary policy through the reinvestment of the proceeds of maturing bonds bought under its stimulus programme and that the bank could postpone its first rate hike, planned for the next summer, if the inflation outlook should be revised downwards and considering that the eurozone macroeconomic scenario has worsened in the last weeks. Therefore, the ECB monetary policy stance remains closely linked to future macroeconomic data but more and more analysts seem inclined to bet on the fact that Frankfurt will not hike interest rates this year.
The Federal Reserve kept interest rates unchanged at 2.5% at the last 29 January FOMC meeting and no hike is expected by investors in the short term, after the speech held by Governor Jerome Powell, who set the new FED forward guidance on the principle of “prudence”. After the publication of the latest US macroeconomic data, which showed a labor market still in good shape, despite the unemployment rate rose to 4.0% in January, from the previous 3.9%, and the inflation rate fell to +1.9% on an annual basis, from the previous +2.2%, the Fed’s monetary stance should become more dovish, also in consideration of the recent corrections observed in the stock markets, in particular in the hi-tech sector. The halt in the normalization process of interest rates, not yet discounted by the markets, has generated the rally of the euro.