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Euro slides on weaker-than-expected German inflation

Philip McHugh November 30th 2023 - 2 minute read

The euro trended lower on Wednesday as it was undermined by softer-than-forecast inflation figures from Germany.

Meanwhile, the pound opens today’s session on the defensive. While GBP/EUR is stable at €1.1585, GBP/USD is subdued at $1.2682. GBP/CAD is muted at CA$1.7238, while GBP/AUD and GBP/NZD retreat to AU$1.9132 and NZ$2.0571, respectively.

Coming up, will a similarly weak Eurozone inflation print extend the euro’s losses this morning?

What’s been happening?

The euro ticked lower during yesterday’s session as markets reacted to Germany’s latest consumer price index.

EUR slipped after November’s preliminary CPI figures reported inflation in the Eurozone’s largest economy cooled from 3.8% to 3.2%, versus forecasts of a more modest drop to 3.5%.

This was more than enough to offset a modest improvement in Eurozone economic sentiment.

The US dollar, meanwhile, was able to claw its way back from its recent multi-month lows on Wednesday as it drew some support from the latest US GDP figures.

The second estimate of growth reported the US economy expanded by 5.2% in the third quarter, being revised up from an initial estimate of a 4.9% expansion.

However, the upside potential of the US dollar remained capped amid a continued decline in US Treasury yields.

At the same time, the absence of any market-moving UK data left the pound trading sideways during yesterday’s session.

What’s coming up?

In the spotlight today will be the Eurozone’s latest CPI data.

In light of Germany’s figures, EUR investors will be bracing for this to also undershoot expectations. Economists had previously forecast inflation in the Eurozone would slow from 2.9% to 2.7% in November.

If Eurozone inflation prints below forecast the euro is likely to plunge, as it further undermines European Central Bank (ECB) interest rate expectations.

On the other side of the Atlantic all eyes will be on the Federal Reserve’s preferred indicator for inflation, the core PCE price index. If October’s index reports another drop in inflation, it’s likely to stoke Fed rate cut speculation and could drag the US dollar sharply lower.

Meanwhile, with UK data still in short supply, the pound may continue to trade without direction today.

Written by
Philip McHugh

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