Euro subdued as German inflation cools

The euro was trapped in a narrow range on Tuesday after Germany reported domestic inflation cooled more than expected in November.

Meanwhile, the pound is muted so far this morning, with GBP/EUR subdued at €1.1558 and GBP/USD stable at $1.1968. GBP/CAD is rangebound at CA$1.6236, while GBP/AUD and GBP/NZD hold steady at AU$1.7844 and NZ$1.9235, respectively.

Coming up, will a larger-than-expected drop in Eurozone inflation drag on the euro this morning?

What’s been happening?

The euro was left mostly rangebound yesterday after Germany’s consumer price index reported inflation in the Eurozone’s largest economy cooled more than expected this month.

This offset the publication of the Eurozone’s latest economic sentiment index, which saw its first improvement in nine months.

The US dollar opened Tuesday’s session on the back foot. Hopes for an easing of Covid restrictions in China helped to cheer markets at the expense of the safe-haven currency.

However, the ‘greenback’ was able to claw back the majority of its losses by the end of the European session, following an uptick in US bond yields.

In contrast, the pound initially firmed yesterday as the currency was supported by an improving market mood, before stumbling through the afternoon as Bank of England Governor Andrew Bailey defended the bank’s quantitative easing programme in front of the House of Lord’s Economic Affairs Committee.

What’s coming up?

Looking ahead, the release of the Eurozone inflation figures will be a key focus for EUR investors.

If inflation in the bloc cools at a similar pace to Germany then it is likely to weigh on the euro this morning as it lifts pressure on the European Central Bank (ECB) to deliver another oversized interest rate hike in December.

In the meantime, a sparse GBP data calendar could leave the pound without any strong directional bias today.

Across the pond we could see an expected fall in November’s ADP employment figures place some pressure on the US dollar this afternoon.

However, the main catalyst for movement in the ‘greenback’ may be a speech by Federal Reserve Chair Jerome Powell later this evening. Could some dovish remarks send USD exchange rates sharply lower?