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EUR Slips as German Inflation Eases But Losses Limited

EUR Slips as German Inflation Eases But Losses Limited

Nick Cawley, Strategist

Talking Points

- German inflation rises less than expected as energy prices abate.

- ECB’s Draghi says loose monetary policy still required.

- 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.

German inflation fell in May, taking the pressure of ECB President Mario Draghi for now. On a month-on-month basis prices fell -0.2% against expectations of -0.1% and last month’s 0.0%. On an annual basis, German inflation fell to 1.5% against a prior month’s 2.0% and expectations of 1.6%. Earlier data from six German states showed food prices increasing while the energy component fell back due to lower oil prices.

The single currency edged lower earlier in the session as the German regional inflation releases were published, continuing a weakening trend started Monday on dovish central bank talk. Speaking to European lawmakers in Brussels, Draghi pointed out, yet again, that the central bank’s current accommodative policy remains necessary despite the recent pick-up in the economy.

Despite a firmer recovery, and looking through the volatile readings in HICP inflation over recent months, underlying inflation pressures have remained subdued. Domestic cost pressures, notably from wages, are still insufficient to support a durable and self-sustaining convergence of inflation toward our medium-term objective. For domestic price pressures to strengthen, we still need very accommodative financing conditions, which are themselves dependent on a fairly substantial amount of monetary accommodation.

Chart: EURUSD Four-Hour Timeframe (May 8 – May 30, 2017)

EUR Slips as German Inflation Eases But Losses Limited

Chart by IG

And the latest IG Client Sentiment Data, show retail investors remain short of the single currency, pointing to a mixed outlook, although further EUR gains are possible.

EUR Slips as German Inflation Eases But Losses Limited

--- Written by Nick Cawley, Analyst

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

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