EUR/USD pares losses on the day after Eurozone inflation data

I’m quite surprised by the reaction in the euro to the data in the last few minutes. It surely isn’t the GDP numbers as they were already well telegraphed by the national readings earlier. So, I can only point to the inflation data being the cause for the reaction.

It’s a roughly 15 pips move for now, so it isn’t that substantial. But EUR/USD has pared losses from earlier today to be flat at the moment.

The inflation data points to core inflation (+2.7% y/y) being higher than estimated, albeit slightly. However, it is still moderating to the lower side from the +2.9% y/y reading in March.

I still see this as not being any setback for the ECB in terms of a move in June. But for the later months, it’s still too early to be calling anything. I would be more guarded against further rate cuts if inflation starts to hit a floor above 2% instead. For now, we’re not quite there yet. However, this is where things will start to get tricky for the ECB i.e. getting core inflation down from 3% to 2%. So, there is that to think about too.

This article was written by Justin Low at www.forexlive.com.