Euro Drops on Lagarde’s Growth Warning Amid Tariff Tensions

CURRENCY FUTURES

The U.S. dollar index is higher.

The euro currency is lower, retreating from a near five-month high, after European Central Bank President Lagarde warned of weaker growth but downplayed inflation risks if the EU retaliated against U.S. tariffs.

Producer prices in Germany increased 0.7% year-on-year in February 2025, accelerating from January’s 0.5% increase but coming in under market expectation of 1.0%.

The Bank of England left its key interest rate unchanged at 4.5% at today’s policy meeting as expected.

The U.K. unemployment rate remained unchanged in January, reassuring the Bank of England’s  path of a gradual easing credit conditions.

The Office for National Statistics said the jobless rate in the U.K. remained at 4.4% in the three months to January, which was unchanged from the prior the three months to August. This was as expected, but remains at the highest level since the three months ending in May.

Regular pay in the U.K., excluding bonuses, increased 5.9% year-on-year in the three months to January 2025, remaining steady for the second consecutive month and aligning with market predictions.

The Swiss National Bank cut its policy rate by 25 basis points to 25 basis points at its policy meeting today as expected. This marks the central bank’s fifth cut in the current cycle.

STOCK INDEX FUTURES

Stock index futures traded higher after the Federal Open Market Committee yesterday reaffirmed its outlook for two interest rate cuts this year.

Jobless claims in the week ended March 15 were 223,000 when 225,000 were expected.

The March Philadelphia Federal Reserve manufacturing index was 12.5 when 11.5 was anticipated.

The 9:00 central time February existing home sales report is forecast to be 3.95 million on an annualized basis.

The 10:00 February leading indicators report is estimated to be -0.2%.

In the longer term, a more accommodative Federal Open Market Committee will support futures.

INTEREST RATE MARKET FUTURES

Futures are  higher across the board with prices above downtrend lines.

Yesterday’s Federal Open Market Committee meeting resulted in an unchanged fed funds rate. However, the central bank indicated that there may be two interest rate cuts this year.

Approximately three weeks ago there was a major change in the fundamentals and outlook for Federal Reserve policies. The probabilities are increasing that the central bank will more aggressively ease credit conditions this year.

Financial futures markets are predicting the FOMC will lower its key interest rate two or three more times this year with the first reduction at its June policy meeting.

An accommodative FOMC will underpin prices.

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