EUR/USD Slips, Eurozone Inflation Rises

01/05/2024

2 minutes read

2024.01.05 08:11

MarketPulse

Eurozone inflation rises, core rate dips
US nonfarm payrolls expected to drop to 177,000

The euro is in negative territory on Friday. In the European session, is trading at 1.0908, down 0.33%.

Eurozone Inflation Rises to 2.9%

Eurozone inflation has been falling and dropped to 2.4% y/y in November, within striking distance of the 2% target. The downward trend reversed itself in December, as CPI jumped to 2.9%, just below the consensus estimate of 3.0%. This was the first uptick in inflation since April. There was better news from Core CPI, which dropped to 3.4% y/y, matching the consensus estimate and down from 3.6% in November. This marked the lowest level for the core rate since March 2022.

The eurozone inflation report should not have come as a surprise, as Germany, the bellwether of the eurozone, posted similar numbers earlier this week. German CPI rose to 3.7% y/y, up from 3.2%, while the core rate fell from 3.7% to 3.5%. I don’t expect the European Central Bank to lose much sleep over a spike in one inflation report but policy makers will be on the alert for inflation continuing to rise. The drop in Core CPI is an encouraging sign, as the core rate is considered a more accurate gauge of inflation trends than the headline release.

US Nonfarm Payrolls Expected to Rise

All eyes will be on the US payrolls release later today. The consensus for the December report stands at 199,000, up from 170,000 in November. The markets will be keeping an eye on wage growth, which is projected to ease to 3.9% y/y, compared to 4.0% in October. This would mark the lowest annual gain since mid-2021. The Fed would like to see wage growth decline as it is a driver of inflation. Fed policymakers will be pleased if the releases are within expectations, as it would indicate that the labour market remains solid but is slowly cooling.

The US will also release the ISM Services PMI for December. The services sector has expanded for 11 straight months and is expected at 52.7 for December, little changed from 52.6 a month earlier.

EUR/USD-4-Hour Chart