Euro trims daily gains as Eurozone inflation accelerates above expectations

The Euro (EUR) is practically flat against the US Dollar (USD) on Friday, with the EUR/USD pair trading at the mid-1.1200s, still close to the 16-month low of 1.1210 hit on Thursday. Eurozone inflation figures have added pressure on the European Central Bank (ECB) to tighten its monetary policy further, but high Oil prices and increasing concerns about France’s fiscal health are keeping Euro buyers away.

September’s preliminary Harmonised Index of Consumer Prices (HICP) revealed that inflation accelerated to a 3.8% year-over-year (Y-o-Y) rate, from 3.2% in August, beating expectations of a more moderate increase to 3.6%. The report suggests that food and, most likely, energy prices are the main drivers for the rise, as the core HICP ticked up to 2.5%, from 2.4%, in line with market expectations.

Oil prices are pulling lower on Friday, with the barrel of Brent Crude retreating below the key $100 level amid reports that supplies from Gulf countries increased sharply in September. Crude Oil, however, has rallied more than 30% over the last three months and remains at levels that pose a critical risk to Eurozone economies.

The US Dollar rallies amid the global bonds' rout

The Greenback, however, keeps drawing support from risk-averse sentiment, amid the global bonds’ rout, which has pushed long-term US Treasury yields to their highest levels in 24 years. In Europe, concerns about France’s ballooning debt have sent the differential between the French and German government bond yields to fresh 14-year highs, above 140 basis points, spooking investors away from the Euro this week.

France’s public debt has reached levels unseen since the postwar period, which has boosted borrowing costs. The yield for the French 10-year government bond has surged more than 70 basis points in September to reach its highest level since 2002 and bring back echoes of the Eurozone’s 2009 credit crisis.

Investors’ focus will shift now to the release of the US Nonfarm Payrolls report, due later on the day. The market consensus anticipates 90K new jobs in September, with the Unemployment rate seen as steady at 4.1%. These figures would endorse expectations of further monetary tightening by the Federal Reserve (Fed), although recent inflation data have cooled expectations of an interest rate hike in October.