Euro down after inflation eases

The Euro is having a difficult time pushing back above 1.1000 during the Asian trading hours on Thursday after weaker-than-expected German and Spain inflation the previous day weighs on the European currency. Now the focus will be on  Italian, French, and Eurozone inflation data on for fresh clues on the state of the Eurozone economy.

The November German Harmonized Index of Consumer Prices (HICP) fell 0.7% MoM from a 0.2% drop in the previous reading. On an annual basis, HICP inflation eased to 2.3% YoY versus 3.0% prior. This is the lowest point of inflation since April 2021. It is nearly at target and declined from a record high of 11.6% YoY in October 2022. However, the reading came in worse than market expectations and suggested downside risks to Eurozone HICP inflation for November.

On Tuesday, Bundesbank chief Joachim Nagel said the European Central Bank (ECB) may need to raise interest rates again if the inflation outlook worsens. Nonetheless, the market is pricing 95 basis points (bps) of rate cuts next year, beginning in April.

Data released from the US included the US Gross Domestic Product Annualized for the third quarter which hit the market at at 5.2% which was an increase from 4.9% in the previous reading and also above market consensus of 5.0%.

Federal Reserve (Fed) Governor Christopher Waller said earlier in the week that inflation currently remains too high, but he stated that progress has been made and the Fed won’t need to hike rates further from here. On the other hand, Fed Governor Michelle Bowman said he sought to keep alive the possibility of another rate hike, raising concerns about the longevity of inflationary pressure.

Market participants will take more cues from more inflation data, due later on Thursday. The Eurozone HICP annual rate is expected to rise 3.9% in November, below the 4.2% recorded in October. Additionally, the German Retail Sales for October and the Unemployment Rate for November will be released. On the US docket, the US weekly Jobless Claims, the Core Personal Consumption Expenditure Price Index (PCE) for October, the Chicago PMI, and Pending Home Sales will be due on Thursday. These figures could give a clear direction to the EUR/USD pair.