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EUR/USD Weakens on Inflation No-Show

EUR/USD Weakens on Inflation No-Show

Nick Cawley, Strategist

Talking Points

- Euro-Zone inflation is tepid and looser-for-longer monetary policy will be required.

- Germany inflation picks-up on higher energy prices but is expected to drift lower going forward.

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Euro-Zone inflation is picking-up but not as quickly as ECB President Mario Draghi would like, leaving the head of the central banks with problems over the coming months. The all item figure rose to 1.5% from 1.4% in the prior month but missed expectations of 1.6%, while the ex-energy, food alcohol and tobacco figure remained stagnant at 0.9%. Ahead the central bank will need to make sure that the ample liquidity is still provided to the market, despite strong growth in the area, a situation that will put Mr. Draghi at loggerheads with the German Bundesbank who would like to see monetary policy normalized as soon as possible.

EUR/USD Weakens on Inflation No-Show

The single currency remained weak against both Sterling and the US Dollar post release. The recent strength in GBP is being fueled by thought that Brexit negotiations could soon enter the second phase, while USD has picked itself up from a very low base with 2-year USTs now offered with a yield of 1.765%, a nine-year high.

Chart:EURUSD Three Hour Time frame (November 17 - November 30, 2017)

EUR/USD Weakens on Inflation No-Show

Chart:EURGBP Three Hour Time frame (November 2 - November 30, 2017)

EUR/USD Weakens on Inflation No-Show

Charts by IG

And this miss was despite German inflation picking-up. The Euro-Zone growth engine released its inflation data Wednesday showing an uptick in the headline rate of inflation to 1.8% in November from 1.6% in October. However, analyst reckon that the increase was due to higher oil prices and when they are stripped out the underlying rate of inflation in Germany is around 1.4%.

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--- Written by Nick Cawley, Analyst

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

Follow Nick on Twitter @nickcawley1

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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