An eventful week is likely to come to an end for investors on both sides of the Atlantic. However, in view of dampened interest rate cut fantasies in the USA, the recent record chase could initially stall further. In Germany, however, the ECB held out the prospect of a rate cut in June.
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Core rate of US inflation rises by 3.8 percent - interest rate cut fantasies are dampened
In the first half of the week, better-than-expected production figures in Germany allowed investors to breathe a sigh of relief for a while. However, fears of the publication of new US inflation figures were clearly too great, and these proved to be true at the end of the day.
At 3.8%, the so-called core rate of US inflation in March was above expectations of 3.7%. In this context, the latest fantasies of interest rate cuts were disappointed. Excessively high inflation continues to provide the US Federal Reserve (Fed) with powerful arguments for keeping key interest rates higher for longer than expected. Investors had recently been betting on a first interest rate cut in June.
ECB keeps its feet still - interest rate cut possible in June
As expected, the European Central Bank (ECB) did not touch the key interest rate level, as the euro guardian announced on Thursday. The deposit rate for commercial banks also remained unchanged at four percent.
"Should its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission further strengthen the Governing Council's confidence that inflation is approaching target on a sustained basis, an easing of the current monetary tightening would be appropriate," the ECB said, hinting at a turnaround in interest rates.
The ECB last adjusted interest rates upwards in September 2023 in the fight against inflation. In March, inflation was still at 2.4 percent, after 2.6 percent in February and 2.8 percent in January. In the medium term, the central bank is aiming for 2.0 percent.
Last month, Lagarde said that the ECB would have enough certainty in June to consider a first interest rate cut.
However, the joy at the prospect of an interest rate cut in June was limited in Germany on Thursday. The question marks surrounding US monetary policy are likely to remain a drag.
On Thursday afternoon, however, US producer prices, which were weaker than expected, provided a glimmer of hope. At 0.2 percent, prices rose less than expected (0.3 percent) compared to the previous month. These figures also serve as a guideline for future inflation trends.
The CME Group's "Fed Watch Tool" now estimates the probability of a rate cut on June 12 at 21.6 percent. Seven days ago, the chance of this was still almost 60 percent.
German inflation declines - US data rounds off the trading week
The final inflation figures for the Federal Republic of Germany on Friday morning came in at 2.2 percent, in line with previous expectations, after 2.5 percent in the previous month (year-on-year comparison).
Meanwhile, Michigan consumer confidence (16:00) could provide some movement. In the evening, further speeches by Fed representatives are likely to provide monetary policy clues. In addition to Bostic from the Atlanta Fed (20:30), attention will be focused on Daly from the San Francisco Fed (21:30).
