Early in Tuesday’s session the Euro to USD exchange rate advanced to a two-week high on expectations that Wednesday’s inflation data will show signs of improvement.
The Euro then fell to a session low against the US Dollar after preliminary inflation data out of the Eurozone’s largest economy came in worse than expected, raising concerns that Wednesdays Eurozone inflation report will disappoint and increase pressure on the European Central Bank to introduce new monetary stimulus measures.
According to Germany’s Federal Statistics Bureau consumer price inflation in Germany fell 0.2% this month, and increased by 1.3% on a year by year basis. The data disappointed economists who had been expecting a monthly fall of 0.1% and a yearly rise of 1.4%.
“The yearly increase is slightly too small to really lean back and relax… It’s clearly going to give them a headache, If the increase in Euro zone inflation tomorrow is also only as small as the German HICP increase, the chances of action have increased, combined with today’s disappointing monetary data,” said ING senior economist Carsten Brzeski.
Despite the monthly fall many economists still believe that tomorrow’s Eurozone inflation report will show signs of improvement. Analysts are expecting tomorrow’s report to show that inflation rose to 0.8% in April.
If that proves to not be the cast then we can expect the Euro to weaken significantly against its peers as expectations that the ECB will have to take action to lower the threat of deflation rise. The ECB could introduce negative rates or introduce quantitative easing in a bid to increase an inflation rate that remains well below its target of just under 2%.
The Euro could fall further against the ‘Greenback’ if US consumer confidence data due for release later in the session comes in strongly.
Euro (EUR) Exchange Rates
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