Source: Original article from XTB, titled “BREAKING: EURUSD muted after expected increase in French and Spanish inflation”
Author: XTB Research Team
Link: https://www.xtb.com/int/market-analysis/news-and-research/breaking-eurusd-muted-after-expected-increase-in-french-and-spanish-inflation
Title: EUR/USD Unmoved Despite Anticipated Rise in French and Spanish Inflation
The euro to U.S. dollar (EUR/USD) exchange rate remained largely unchanged in early European trading hours on Tuesday, even after fresh inflation data was released from France and Spain. These figures aligned with previous expectations and offered limited surprises to the market, resulting in minimal volatility for the exchange rate. The subdued EUR/USD reaction reflects a broader pattern in the forex market, where anticipated inflation dynamics are already priced in, and traders are instead focusing on the European Central Bank’s (ECB) next policy steps.
In this article, we will delve deeper into the inflation data from France and Spain, assess the market reactions, analyze how the European Central Bank might interpret this information, and explore what lies ahead for the EUR/USD pair.
Key Highlights:
– Preliminary inflation data from France and Spain met market expectations.
– Headline inflation in both countries showed an upward trajectory.
– Core inflation remained steady, hinting at lingering price pressures.
– EUR/USD remained flat despite the inflation uptick, suggesting traders were tuned in to forward-looking policy measures instead.
– Attention now shifts to Eurozone-wide inflation data and the upcoming ECB meeting.
– Broader market dynamics and Federal Reserve policy expectations are also influencing EUR/USD pricing.
French Inflation: Detailed Breakdown
France reported its preliminary Harmonised Index of Consumer Prices (HICP) for May 2024. According to INSEE, the national statistics agency, consumer prices rose at a slightly quicker pace compared to the previous month.
– May HICP rose to 2.7% year-over-year, up from 2.4% in April.
– Energy prices were the main contributor to headline inflation, reversing earlier declines.
– The core inflation rate, which excludes volatile items such as food and energy, held steady at 2.1%.
– On a monthly basis, HICP inflation climbed by 0.3% following a flat print in April.
Market interpretation:
The market response to the French CPI figures was muted. Investors had already priced in an acceleration in inflation, mainly due to base effects from last year’s low energy prices. The modest increase in core inflation was seen as consistent with existing projections from the European Central Bank.
Spanish Inflation: Summary and Implications
Likewise, Spain published its flash inflation data for May, released by the National Statistics Institute (INE), which also posted figures aligning with analysts’ forecasts.
– Spanish HICP for May landed at 3.8% year-over-year, in line with expectations and up from April’s 3.4%.
– The core inflation rate remained relatively stable at 2.9%.
– Month-over-month inflation increased by 0.3%, suggesting continued cost pressures particularly in sectors such as services and housing.
Market interpretation:
The Spanish CPI print did not trigger any significant FX moves. As with France, the increases were deemed to be anticipated, and therefore had already been reflected in EUR/USD positioning. From a broader Eurozone perspective, the consistent core inflation is an important indicator for the ECB regarding underlying price trends.
EUR/USD: Charting the Currency Reaction
Despite the uptick in national inflation figures, the EUR/USD exchange rate showed limited movement in the morning session.
– The EUR/USD pair hovered around 1.0850 after trending higher in recent weeks.
– The muted response can be attributed to the fact that the inflation prints were largely priced in.
– Markets shifted attention to Eurozone-wide inflation data slated for later this week, which holds more weight in terms of policy guidance.
Additional Factors Supporting the USD:
– Resilient U.S.
Read more on EUR/USD trading.