EUR/USD rose after data from the European Commission indicated that the eurozone economy will do better this year. A mild winter and large gas reserves are helping the energy crisis fade more easily, while the labor market, which many also feared, has remained quite strong despite the developments.
European Union officials have also raised their forecast for GDP growth this year - by 0.9% - and said a recession will definitely be avoided. Although they lowered their forecast for consumer price growth, they kept it high at 5.6%.
However, economics commissioner Paolo Gentiloni warned that "better than expected" does not mean good as Europeans are still going through a difficult period of slowing economic growth and a gradual decline in inflation.
Nevertheless, the latest forecast is a marked improvement compared to the November forecast, when officials expected eurozone GDP to grow by just 0.3% this year and inflation to be 6.1%. Consumer prices were also projected to rise by 5.6% in 2023 and 2.5% in 2024, almost reaching the ECB's target level.
The government said they will keep a close eye on new data as they try to cut spending to support households and businesses as part of a major energy crisis relief program. However, the European Commission said households and businesses continue to face high energy bills, while underlying inflation, excluding energy and food, continues to reduce purchasing power. This may mean that the ECB will continue to raise interest rates.
Germany and Austria are the only two eurozone countries in recession for two consecutive quarters. Italy's economy is also expected to stagnate in the first three months of 2023, following a slight downturn in the fourth quarter.
The European Commission named the geopolitical tensions in Ukraine as one of the reasons for uncertainty.
Pressure on EUR/USD eased as everyone is focused on the new fundamental data. To stop the bear market, a hold above 1.0710 is needed as that will spur a rise towards 1.0750, 1.0790 and 1.0830. In case of a decline below 1.0710, the pair will rush down to 1.0670 and 1.0640.
In GBP/USD, the bulls have almost regained all the advantage they lost at the end of last week. The breakdown of 1.2190 is needed so that the pair will proceed to 1.2240 and 1.2290. But if bears gain control of 1.2115, a drop to 1.2030 and 1.1965 is possible.