EUR/USD did not spend too long under 1.0800 at all on Thursday. Economists at ING analyze the pair’s outlook.

Core inflation disappoints

Short-date Eurozone interest rates got a lift on Thursday from the January CPI numbers where core inflation did not fall as much as expected. The European Central Bank could be concerned that companies do not have the pricing power to avoid margin pressure and will pass higher wage costs onto the consumer. Hence it makes perfect sense for the ECB to wait until June, when it will have the wage data, to cut interest rates.

If today’s US NFP figure is benign, then EUR/USD can knock on the door of 1.0875/1.0900 again. However, one-month EUR/USD realised volatility continues to drift around the lows near 6% and low implied volatilities suggest that investors are not expecting a pick-up in FX volatility anytime soon.