Inflation data from German states, used to calculate a preliminary inflation figure for the euro zone's largest economy due at 1200 GMT, have started to come in.
Consumer prices in the state of North Rhine Westphalia rose by 0.6 % month-on-month in March, versus a 1% climb in February, and were up by 6.9 % year-on-year, from 8.5% previously.
Separately, data showed that Spain's consumer prices rose 3.3% year-on-year in March, the slowest pace since the 12-month period through August 2021 and less than expected by analysts.
"With the European Central Bank explicitly data-dependent
...this week’s inflation figures are set to be an important
driver of the market’s rate expectations," said Francesco
Pesole, FX strategist at ING.
The ECB has increased its key deposit rate by 350 basis
points to 3% since July as it seeks to tame surging inflation.
There are currently two 25 basis point rate hikes by the
European Central Bank fully priced in by September, according to
Refinitiv.
European Central Bank board member Isabel Schnabel said on
Wednesday underlying inflation in the euro zone is proving
sticky and the recent fall in energy costs may not pull it down
as fast as some expect.
The euro edged up 0.07% to $1.0851, but was on
track to end the month with a 2% gain.
The dollar index , which measures the currency against six major peers, was 0.1% lower at 102.52, as banking crisis worries faded. It was on course to clock a 2% decline for March due to market tumult triggered by the collapse of U.S. lender Silicon Valley Bank and culminated in the emergency takeover of Credit Suisse by rival UBS.
The dollar had been under pressure from the possibility that
the Federal Reserve may have to relent in its fight against
inflation and pause rate hikes.
But with no further signs of cracks in the financial sector
and after steps taken by regulators, investor nerves have been
calmed for now.
"The broader risk sentiment appears sustained as bank
contagion concerns continued to fade," said Christopher Wong, a
currency strategist at OCBC in Singapore.
Data on U.S. personal consumption expenditures due on Friday
will provide further clues on inflationary pressures in the
world's largest economy.
"With recession fears fading off, the market's focus is now
turning to the upcoming U.S. PCE data later this week, which is
seen as the Fed's favourite inflation parameter," said Tina
Teng, an analyst with CMC Markets.
Sentiment also improved after the tech behemoth Alibaba announced plans on Tuesday to split into six units,
which investors have taken as a signal that Beijing's regulatory
crackdown on corporations is ending.
The Japanese yen strengthened 0.4% to 132.35 per
dollar, after falling 1.5% on Wednesday. The currency has been
volatile in the run-up to the end of the Japanese fiscal year on
Friday.
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(Reporting by Joice Alves, additional reporting by Ankur
Banerjee in Singapore; Editing by Angus MacSwan)
