EUR/USD falls amid weak inflation data

03/02/2023

1 minute read

2023.03.02 11:05

The euro is still busy, trading at 1.06200 on Thursday, down 0.40 percent. This follows the gain of 0.90 percent the previous day.

Inflation in the Eurozone drops to 8.6%.

The movements of the euro today and yesterday were largely influenced by inflation readings. Today, the Eurozone Final fell sharply from 9.2% in December to 8.6% in January. After reaching a peak of 10.6% in October, headline inflation decreased for the third consecutive month.

The core rate has increased from 5.2% in December to 5.3% in January, defying this downward trend. Concerns that the ECB would need to implement another 50-basis-point increase in May after the anticipated 50-bp increase at the March 16 meeting were eased by the improvement in headline inflation.

After German inflation edged up to 9.3% in February, up from 9.2% in January and above the estimate of 9.0%, these concerns that the ECB would remain aggressive pushed the euro up almost 1% on Wednesday. Food and energy were the usual culprits in driving up inflation.

Although the government has provided subsidies for energy, prices for energy still increased by 23.1 percent annually in January, while food prices increased by 20.2 percent annually. In addition to the German inflation report, inflation was unexpectedly high in France and Spain.

The German and eurozone Service PMIs, which have been improving and are back in expansion territory, will conclude the eurozone data calendar. This is a sign that economic activity is picking up. Expectations call for a German PMI of 51.3 points and a Eurozone PMI of 52.3 points.

In the United States, the Federal Reserve’s message of higher interest rates is still hawkish. Bostic, a member of the Fed, reiterated this position, stating that the terminal rate would have to remain between 5% and 5.25 percent well into 2024. The markets have priced in a terminal rate of 5.50 percent, but some have called for rates to rise as high as 6 percent due to concerns about sticky inflation.