The euro took a sharp tumble yesterday as a result of worse-than-expected inflation data coming out of Germany. Figures came through detailing an inflation rate of 1.1% in the Eurozone’s largest economy, 0.2% less than median predictions. When the figures came through around lunchtime, we saw the single currency weaken sharply, heading back up towards 1.22 against sterling and down to 1.38 against the US dollar.
The poorer performance of Germany in terms of consumer inflation has raised doubts over whether today’s Eurozone Flash Consumer Price Index (CPI) data will reach earlier predictions of 0.8%. Should the CPI data fail to reach this, it is likely that we will see further euro weakness as investor concerns mount regarding continued low interest rates. European Central Bank (ECB) President Mario Draghi may have alleviated some of the imminent fears of asset-buying in a private address yesterday; however, it is likely to take a more public assertion to deter traders from reacting should we see low CPI figures this morning. Whilst uncertainty remains, sharp movement in euro rates remains likely.
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