Summary:
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German HICP: +1.5% vs +1.6% exp
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EURUSD dips to low 1.12s
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Lowest level for the pair in 3 weeks
There are growing signs of disinflation around the Eurozone, with the latest data from Germany coming in lower than forecast and a key inflation expectation gauge dropping to its lowest level since September 2016. The HICP for Germany Y/Y came in at +1.5% vs +1.6% expected, extending its recent decline. Regional releases earlier in the day hinted that the countrywide figure could be soft, and the decline will dampen expectations somewhat for a sizable rise in the EU release due out on Monday. On the topic of inflation, a key market gauge of long-term euro zone inflation expectations fell to within 6 basis points (0.06%) of its all time low earlier today, with the five-year, five-year forward declining to its lowest level since September 2016 at 1.31% and down by 0.1% on the week.
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German inflation figures extended their decline with the latest release and attention now turns to the EU numbers due out on Monday. Source: xStation
Lower inflation is often seen as negative for a country’s (or bloc’s) currency in the short-term as it will persuade the central bank to pursue a more accomodative monetary policy. This month there’s been so-called “dovish” moves by both the ECB and the Fed which have had a clear short-term impact on the market. However, both these moves have lack the necessary momentum to sustain and ultimately faded and reversed in the hours that followed.
The bigger picture sees the EURUSD remain under pressure and the pair has drifted back into the low $1.12s this afternoon and trade at its lowest level in 3 weeks. Source: xStation
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