The Euro is stable on Thursday, as the EUR/USD trades at 1.1330 during the North American session.
Eurozone CPI hits 5.0%
Inflation has been the buzzword in major economies, spurred by soaring energy costs and supply bottlenecks that have led to shortages of certain commodities. In the euro zone, inflation rose from 4.9% to 5.0% y/y in December. Core CPI remained at 2.6% y/y. These two readings corresponded to the consensus.
With inflation in the bloc rising, but not at the same pace as in the US or the UK, markets have been pricing in a rate hike in October, but only a small 10 basis point move. The ECB, however, has given no signal to change its ultra-accommodative policy and continues to insist that high inflation is “transitional”. Readers will recall that Fed Chairman Powell stuck to that phrase for months in the face of soaring inflation, but reluctantly “removed” it from the Fed lexicon in late November.
Will Christine Lagarde follow? The ECB President dismissed inflationary pressures, and even though Eurozone inflation is on the rise, she argued that the ECB would not follow the Fed’s lead because the economic situation in the Eurozone is different. Lagarde doubled down on that stance in a radio interview today, insisting that inflation will slowly decline in 2022 as high energy prices and supply bottlenecks ease. will mitigate.
Markets are betting that despite Lagarde’s rhetoric, the ECB will have no choice but to scale back asset purchases and raise rates, like the Federal Reserve. This hawkish view has led to the recent rise in German Bund yields. On Wednesday, the 10-year rate moved into positive territory for the first time since 2019.
- EUR/USD has support at 1.1306 and 1.1197
- There is resistance at 1.1504 and 1.1593