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Further Fall Off In Eurozone Inflation

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Preliminary March inflation numbers have just been published for the Eurozone. The year on year Core Consumer Price Index is 0.8% against a previous reading of 1%. The non-Core figure when food, energy and tobacco are added back in was 0.5%, this missed the expected figure of 0.6% and also last months number of 0.7%.

This fall in inflation confirms last week’s reduction in the German CPI and HICP figures and does not bode well for the Eurozone.

The European Central Bank (ECB) is struggling to stimulate economic activity within the Eurozone. Last month it seemed that the Bank had this under control as inflation, which is at a dangerously low level, ticked up briefly. It now appears that the ECB is no longer winning the price stability battle.

Interest rates in the Eurozone are at historically low levels of 0.25%, it is accepted that these are effectively as low as they can go. Given today’s inflation reading however the ECB will be under significant pressure to further cut these rates when it meet’s later this week. It is now looking increasingly likely that come lunchtime on Thursday, the Eurozone will be facing 0% interest rates.

There will be very keen interest in the post rate announcement press conference as investors and market participants will be watching for signs that the ECB has a plan to stimulate economic activity.

The Euro reacted sharply to this morning’s inflation data and it appears that Euro traders are already pricing in the ECB’s projected rate action. EURUSD gapped lower on publication of the figures, dropping 30 points before trading back up to fill in the technical gap. The single currency is still trading in a bearish fashion in the wake of the inflation data and it looks likely that 1.37 against the US Dollar could come into play as the day progresses, however some buy orders around 1.3725 may provide a base.

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