EUR/USD reaches weekly lows after strong US PPI data, trades near 1.0870

The EUR/USD pair continues its downward trend for the second consecutive day, hitting weekly lows near 1.0870 in the Asian session on Friday. The depreciation of the EUR/USD is attributed to the US Dollar (USD) gaining strength, buoyed by the robust Producer Price Index (PPI) data from the United States (US), signaling ongoing inflationary pressures in the economy.

The US Core Producer Price Index (PPI) held steady with a 2.0% year-over-year increase in February, surpassing expectations which were set at 1.9%. Monthly, the report indicated a 0.3% uptick compared to the previous 0.5%, outperforming the anticipated 0.2% reading.

In February, the US PPI (YoY) experienced a 1.6% increase, exceeding both the expected 1.1% and the previous 1.0%. Meanwhile, the PPI (MoM) saw a 0.6% rise, surpassing market expectations and the previous 0.3% increase.

These figures add complexity to the Federal Reserve's interest rate cut timeline. According to the CME FedWatch Tool, the probability of a rate cut in March currently sits at 1.0%, decreasing to 7.7% for May. The likelihood of rate cuts in June and July are comparatively lower, standing at 59.0% and 79.4%, respectively.

The Euro confronts further hurdles due to the dovish stance emerging from European Central Bank (ECB) policymakers. François Villeroy de Galhau, an ECB policymaker, suggested on Wednesday that a rate cut in the spring remains probable. Additionally, on Thursday, ECB Governing Council member Yannis Stournaras advocated for an early rate reduction.

On Friday, ECB Board Member Philip Richard Lane is scheduled to deliver a guest lecture at the Imperial College Business School in London, United Kingdom. Investors are expected to closely monitor his remarks for insights into the ECB's policy direction.