Euro firms as German inflation beats expectations

The euro rallied on Thursday, in response to a hotter-than-expected German inflation print.

Meanwhile, trade in the pound is mostly flat so far this morning, with GBP/EUR stable at €1.1365 and GBP/USD buoyed at $1.2391. GBP/CAD and GBP/NZD are holding steady at CA$1.6779 and NZ$1.9756, respectively, while GBP/AUD ticks up to AU$1.8488.

Coming up today, will a stronger-than-expected Eurozone inflation reading help to extend the euro’s gains today?

What’s been happening?

The euro initially struggled yesterday after the Eurozone’s latest economic sentiment index printed below expectations in March.

However, EUR exchange rates rallied in the afternoon with the publication of Germany’s consumer price index.

March’s flash CPI release reported inflation in the Eurozone’s largest economy slowed from 8.7% to 7.4%. But this printed slightly above forecasts it would fall to 7.3%, which in turn helped to underpin European Central Bank (ECB) rate hike bets and boost the euro.

The US dollar, meanwhile, struggled to attract support on Thursday, with initial losses stemming from a prevailing risk-on mood.

The USD selling bias was then reinforced by some lacklustre US data. US GDP in the last quarter of 2022 was revised slightly lower, while initial jobless claims rose more than expected last week.

At the same time, the pound benefitted from an improving market mood in addition to some repositioning by investors as we near the end of the first quarter of 2023.

What’s coming up?

Kicking off today’s session was the publication of upwardly revised UK’s GDP figures.

The final estimate for the last quarter of 2022 saw growth revised up from 0% to 0.1%, confirming the UK avoided a recession and potentially providing some support to the pound this morning.

Also coming up this morning is the preliminary publication of the Eurozone’s March CPI figures.

Consensus estimates predict inflation in the bloc will have slowed from 8.5% to 7.1% this month. Could this weaken the euro? Or will a surprise to the upside bolster ECB rate hike expectations and lift the single currency?

Closing out this week’s session will be the publication of the latest core PCE price index. Could a drop in the Federal Reserve’s preferred indicator for inflation weaken Fed rate hike bets and drag the US dollar lower this afternoon?