The EUR/USD pair has experienced volatility, initially unwinding its late-January rally and falling towards its 2026 opening level, driven by increasing expectations of ECB rate cuts due to softer Eurozone inflation and uncertainty surrounding President Lagarde's potential successors. Recent German PMI data – Manufacturing (50.7), Services (53.4), and Composite (53.1) – exceeded forecasts in February, providing some support to the Euro, though upside remains limited. However, the EUR/GBP weakened as robust UK economic data, including Retail Sales and PMIs, outperformed the positive Eurozone readings. Simultaneously, the EUR/USD has found some stability as weak US GDP growth (1.4% in Q4 2025) clashes with persistently firm US inflation data (0.4% MoM core PCE in December). This mixed US data has created short-term volatility in the US Dollar. Market sentiment remains cautious, influenced by hawkish Fed minutes and anticipation of key economic releases from both the UK and US. Investors are closely monitoring inflation dynamics as the primary driver of ECB policy.
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