Euro bulls must now hope for the ECB – Commerzbank

Yesterday brought us three pieces of news that could be relevant for the euro. Italian inflation in March was much higher than expected, while German inflation was slightly lower. In France, Marine Le Pen was found guilty of embezzling EU funds and sentenced to prison and a fine, as well as banned from standing in elections for the next five years. Finally, reports emerged overnight that an increasing number of ECB Governing Council members are open to the idea of leaving interest rates unchanged in April. As a result, market expectations were slightly corrected and the euro gained some ground, Commerzbank's FX analyst Michael Pfister notes. 

ECB can leave interest rates unchanged

"With the Dutch figures published this morning, almost 85% of the figures for the euro area as a whole are now known. The figures so far point to slight upside risks with 0.68% for month-on-month and 2.23% for year-on-year inflation (0.6% and 2.2% are expected). However, as we are not the only ones to derive an estimate for the euro area as a whole from the already known figures, the surprise should be limited – if it comes at all and the missing 15% does not prevent it."

"In France, Marine Le Pen, the leader of the right-wing nationalist Rassemblement National, was found guilty of embezzling EU funds and sentenced to prison and a fine, as well as banned from standing in elections for the next five years. The latter is immediate and cannot be delayed by a possible lengthy appeal process through the courts. This is a major setback for Le Pen, especially with the French presidential elections in 2027, and fuels fears that France is becoming ungovernable, which does not bode well for the euro area."

"This ECB point is likely to be the most important for the euro for the time being. Now that the appreciation of the euro in the wake of the German fiscal package has corrected somewhat in recent days, the euro's future strength is likely to depend primarily on how much the ECB delays further interest rate cuts. If the ECB refrains from cutting rates in April and instead emphasises the uncertainties regarding inflation due to possible US tariffs, this would be a strong signal for the euro. Anyone who is bullish on the euro will be hoping for further reports between now and then that the ECB wants to take a slower approach."