Euro fell against the US dollar to the level of 1.06828 at approximately 9:05 am GMT after the announcement of euro zone inflation figures, which were slightly weaker than expectations.
While the euro continued its gains in the following minutes and reached the level of 1.06909 against the US dollar.
These Euro moves came after the Consumer Price Index (CPI) figures for August for the Eurozone. These numbers were slightly weaker than expected at the main reading level.
Annual inflation came at 5.2%, which was lower than expectations and the previous reading at 5.3%, while we witnessed a noticeable increase, albeit less than expected, in the level of monthly inflation, which came at 0.5% compared to expectations at 0.6% and the previous reading at -0.1%. We also saw some slowdown in core inflation, with the annual core CPI reading at 5.3%, in line with expectations and lower than the previous reading of 5.5%.
As for bond markets, we witnessed some rises in euro zone government bond yields for two years to 3.263% and for ten years to 2.708% at the peak of the rises at approximately 9:30 am shortly after the inflation figures were announced.
These inflation numbers came after the European Central Bank (ECB) raised interest rates by 25 basis points last week. While Christine Lagarde said that interest rates have reached their peak, which may enable inflation to reach its target of 2% in the medium term.
She also said that inflation will indeed continue to decline, but it may take a long time. It appears that this is what we have actually seen in today’s mix of numbers.
Today’s slowdown in headline inflation may suggest to markets that inflation is actually declining. But on the other hand, the stickiness in core inflation may continue to give warning signals about the possibility of a return to raising interest rates, at the same time that we see speculation about the possibility of the ECB moving to start cutting interest rates in January next year.
While the Vice-President of the ECB questioned these speculations, saying that they are just a bet and that the markets maybe wrong, and the bank may cut or raise the interest rate based on the data available at the time.
While today’s inflation numbers may come in support of the Eurozone economy, which is suffering from a slowdown in many of its sectors, something Lagarde continued to warn about during the previous two meetings of the ECB, which may lead not to raise interest rates again despite the stickiness of inflation.
Accordingly, this is what may lead the markets to focus on the growth numbers in the various sectors of the Eurozone economy instead of focusing on the inflation numbers, which may seem that they will not push the ECB to raise interest rates unless we witness more unexpected events that may fuel inflation again.