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EUR Gains After Inflation Readings Beat Expectations

EUR Gains After Inflation Readings Beat Expectations

Nick Cawley, Senior Strategist

Talking Points

- The EUR is moving to the upside after inflation in the single-block moves higher.

- Core inflation still remains below target, justifying the central banks ongoing loose monetary policy.

- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for next week on the DailyFX Webinar Calendar.

The latest Euro-Zone inflation readings beat market expectations, giving the single currency a boost. The headline consumer price index y-o-y rose to 1.9% against a prior 1.5% and expectations of 1.8%, while the closely watched core reading rose to 1.2%, against last month’s 0.8% and expectations of 1.0%. While the move will have pleased ECB President Mario Draghi, the core reading is still some way off the target of close to 2%.

The EUR jumped on the latest data, pulling back all of its recent weakness against the USD and nearing its post-French election highs.

Chart: EURUSD 5-Minute Timeframe (April 28, 2017)

Chart by IG

The recently released ECB Survey of Professional Forecasters however showed core inflation expectations unchanged from three months ago. The survey expects the ECB’s favoured inflation reading at 1.1% in 2017 and 1.3% in 2018. Headline inflation - including energy and food - is expected to be 1.6% in 2017, up from 1.4% three months ago.

At Thursday’s ECB meeting, President Draghi highlighted that Euro-Zone inflation has yet to become enthrenched, shutting the door on recent calls to tighten monetary policy.

"Underlying inflation pressures continue to remain subdued and have yet to show a convincing upward trend.” He added “The ongoing volatility in headline inflation underlines the need to look through transient developments which have no implication for the medium-term outlook for price stability.”

--- Written by Nick Cawley, Analyst

To contact Nick, email him at Nicholas.cawley@ig.com

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