Euro firms as German inflation climbs to near 50-year high

Philip McHugh May 31st 2022 - 2 minute read

The euro ticked higher on Monday, after Germany’s consumer price index printed above expectations this month.

Meanwhile the pound is muted at the start of today’s session, with GBP/EUR flat at €1.1741 and GBP/USD dipping to $1.2619. GBP/CAD is subdued at C$1.5991, while GBP/AUD and GBP/NZD hold steady at AU$1.7568 and NZ$1.9312, respectively.

Looking ahead, will another uptick in Eurozone inflation help to extend the euro’s gains today?

What’s been happening?

The euro got off to a positive start this week in response to Germany’s latest consumer price index.

Preliminary figures reported German inflation surged from 7.4% to 7.9% in May. The above forecast surge in inflation was seen as keeping a 50bps rate hike from the European Central Bank (ECB) on the table, despite some dovish remarks from ECB chief economist Philip Lane earlier in the session.

On the other hand, the euro’s gains were capped as the EU pushed forward with its plan to ban Russian oil imports, raising concerns over European energy security.

The pound, meanwhile, traded without any strong directional bias on Monday as UK businesses called for Chancellor Rishi Sunak to do more to support the thousands of firms currently struggling to stay afloat.

Finally, the extended Labor Day weekend in the US resulted in thin trading conditions in the US dollar yesterday. Alongside fresh doubts over how aggressively the Federal Reserve will continue to raise interest rates in the second half of the year, this left the ‘greenback’ to trade with modest losses.

What’s coming up?

Centre stage today will be the publication of the Eurozone CPI figures.

These are expected to report inflation the bloc surged to a new record high this month, with Germany’s above forecast release potentially pointing to the Eurozone release exceeding expectations.

This could help to further bolster expectations for a 50bps rate hike from the ECB in July and help extend the euro’s bullish trajectory.

Another elevated consumer credit release could send the pound lower this morning if it raises concerns UK families are needing to borrow more to make ends meet.

Finally, the reopening of US market could help to support demand for the US dollar today.

Written by
Philip McHugh

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