Euro-Dollar Higher “a Notch” Following Spanish CPI Inflation

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The Euro has firmed following the release of inflation figures from a number of European countries, as well as German states.

Of particular interest is Spain, where CPI inflation printed at 2.8% year-on-year in February, according to the INE, down from 3.4% but above expectations for a fall to 2.7%. The annual core rate of CPI fell to 3.4% from 3.6% in January but was higher than the 3.3% expected by analysts.

“Spanish CPI, which is considered a lead indicator for the currency bloc, has risen faster than expected for February,” says Kathleen Brooks, research director at XTB.

The Euro to Dollar exchange rate recovered by about a third of a per cent from midweek lows to quote at 1.0836 in the wake of the inflation data. “The stronger national CPI readings from Spain and France have pushed the euro higher by a notch,” says Brooks.

Meanwhile, France recorded a 3.1% y/y increase in inflation, down on January’s 3.4% but still above the consensus expectation for 3.0%.

These data suggest Friday’s all-Eurozone CPI inflation figures might not provide the ‘smoking gun’ euro bears require for a sustained selloff. This is because the European Central Bank (ECB) says it will only cut interest rates once it is confident inflation is falling to the 2.0% target on a sustained basis.

For the Euro to fall relative to the Dollar and Pound, markets need convincing that the ECB will cut sooner and faster than peers in the UK and U.S.

All eyes now turn to the German CPI release due later today and Friday’s Eurozone figures.

German states have already printed their figures, which suggest the national figure will decline from January.

But, as always, what is key for Euro-Dollar is whether the final print exceeds or undershoots expectations.

The inflation rate in North Rhine-Westphalia, Germany’s most populous state, fell to 2.6% in February from 3.0% in January.

Saxony and Baden-Wuerttemberg saw the largest dips, falling to 3.0% from 3.5%, and to 2.7% from 3.2%, respectively.

Those states were followed by Bavaria, where the rate fell to 2.6% from 2.9%, Brandenburg, with a fall to 3.5% from 3.7%, and then Hesse, at 2.1% from 2.2% the month before.