Germany moved the Euro – Commerzbank

German inflation figures were the main focus for EUR/USD on Thursday. After the Spanish CPI figures came in slightly below expectations, causing some temporary weakness in the Euro, the German regional CPI figures caused EUR/USD to drop below the 1.11 level. The official figures then confirmed the pre-announcements – at 1.9%, the inflation rate was below the central bank's target for the first time in 3 years, Commerzbank’s FX Analyst Volkmar Baur notes.

EUR/USD to be moved by euro area inflation

“More inflation data is due today: First up at 10am (UTC+1) are inflation rates for the euro area. The Fed's preferred inflation gauge for the US, the PCE deflator, will be released at 1:30 pm. However, neither figure is likely to have the same impact on the exchange rate as yesterday's. In the case of the Euro figures, this is because a number of national statistical offices have already published their figures yesterday.”

“A downward surprise is expected. The Bloomberg survey of economists conducted before yesterday's figures still shows an expectation of 2.2%, and the harmonized CPI YoY came out as expected. The situation is similar for the US figures. Consumer (CPI) and producer (PPI) prices are always released in the middle of the month in the US, with most of the components of these indices going directly into the PCE deflator. Again, the potential for surprises is limited.”

“In addition, the focus in the US is now clearly on next week's labor market data. Statements by Fed members in recent weeks have made this clear. Inflation no longer stands in the way of a rate cut. It now depends on the labor market how fast and how much interest rates will fall. Meanwhile, the situation in the euro area is still different. The economy is already weaker. It is the persistence of inflation that makes ECB members cautious about further rate cuts. If an inflation number is going to move the EUR/USD again today, it is more likely to be the euro area one.”