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Euro Edges Higher as German CPI Accelerates

H.S. Borji
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Euro Edges Higher as German CPI Accelerates

The euro ended the week on a strong note after German inflation edged higher in June, rebounding from multi-year lows that compelled the European Central Bank to slash interest rates even further.

German consumer prices rose at an annual rate of 1 percent in June, after falling to 0.9 percent the previous month, the Federal Statistics Office reported today. Economists forecast a similar increase.

Month-on-month, consumer prices were up 0.3 percent, after declining 0.1 percent in May.

In European Union-harmonized terms, German inflation advanced 1 percent annually in June, after falling to 0.7 percent the previous month.

Inflation remains unusually low across the Eurozone, which compelled the ECB to introduce new measures to combat deflation. The ECB earlier this month set the benchmark interest rate at 0.15 percent and introduced a negative deposit rate in an effort to shore up consumer prices.

Deflation has been a chief concern for European policymakers, who are contending with eight consecutive months of dangerously low price growth. Eurozone consumer prices increased just 0.5 percent annually in May, generating fears the 18-nation currency bloc was headed toward a deflationary cycle.

Deflation is a large inhibitor of economic growth, and can lead to a dangerous cycle of declining consumer spending.

The rise in German inflation probably won’t deter the ECB from its current objective, which is to introduce added stimulus measures to shore up price growth.

The European Commission will release June CPI figures Monday.

In other data, German import prices were unchanged in May. Year-on-year, import prices were down 2.1 percent.

The National Institute of Statistics and Economic Studies released a more complete picture of first quarter French GDP. Insee confirmed French GDP held steady in the first quarter, as household purchasing power and corporate profit picked up.

Year-on-year, France’s GDP expanded 0.7 percent.

The euro advanced briskly against its US and British counterparts. The EURUSD advanced 0.14 percent to 1.3630. The pair rose to an intraday high of 1.3637, falling short of the initial resistance of 1.3643. On the downside, the pair faces initial support at 1.3577.

The EURGBP eased off an intraday high of 0.8017, but remained well supported north of the 0.82 level. The pair climbed 0.22 percent to 80.12. Initial support is likely found at 0.7973 and resistance at 0.8024.

In British data, the UK economy accelerated 0.8 percent in the first quarter, the Office for National Statistics confirmed today. Year-on-year, UK GDP accelerated 3 percent.

Total business investment surged 5 percent in the first quarter, more than double the rate of the previous quarter. Compared to the first quarter of 2013, total business investment was up 10.6 percent.

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