The Euro is heading for its 3rd straight day of losses as we head into the European session against the greenback after the release of yesterday’s inflation figures may have eased the pressure on the European Central Bank with regards to rate hikes.
Euro zone inflation numbers turned out to be a mixed bag, accelerating to 7 per cent in April, up from 6.9 per cent in March, confirming preliminary data.
The latest Eurostat figures indicate the lift in headline price growth was driven by rising services and energy costs and offset by a slowdown in food price growth but on the upside, underlying or core inflation, which strips out volatile energy and food prices, eased to 7.3 per cent from 7.5 per cent.
Underlying price growth has been a key focus of European Central Bank (ECB) policymakers amid concern the initial price surge has spread out to other parts of the economy and may be driving higher wage demands.
Inflation has been above the ECB’s 2 per cent target for nearly two years and the bank has lifted interest rates by a combined 375 basis points since last July to arrest runaway price growth.
But more hikes are likely as it could be 2025 before inflation is back at target and the last mile of disinflation, getting from 3 per cent to 2 per cent, could be especially difficult, taking nearly 2 years.
Services inflation, which is primarily driven by labour costs, accelerated to 5.2 per cent from 5.1 per cent, confirming policymaker fears that nominal wage growth could become dangerously fast.
Form the US we saw the release of key real estate numbers and the monthly data published by the US Census Bureau revealed on Wednesday that Housing Starts rose by 2.2 percent on a monthly basis in April following March 4.5 percent decline. This reading came in better than the market expectation for an increase of 1.9 percent. In the same period, Building Permits fell 1.5 percent, compared to analysts' expectations for a figure of 3 percent.
Looking further ahead today, the main drivers of the EUR/USD current y pair will be the release of 2 key monetary speeches with the first being from European Central Bank boss Christine Lagarde and the focus of market participants will be any signs of the size of the rate hike expected to be delivered next month.
From the US, will see the release of a speech by US Federal Reserve board member Philip Jefferson where the question of further rate hikes will also be on the table.