- Eurostat is set to release key Europe inflation data on Wednesday.
- Headline annual inflation is seen holding steady at 2.6% in March.
- The European Central Bank (ECB) is expected to cut rates in June.
The Harmonized Index of Consumer Prices (HICP), a measure of inflation for the Eurozone, will be released on Wednesday, April 3. The inflation data from the old continent will be closely scrutinized by the European Central Bank (ECB) against rising speculation that the bank could start its easing cycle as soon as at its June event.
A glimpse at recent European data saw consumer prices in the euro bloc climb at an annualized 2.9% in the year to December 2023, just to recede in the subsequent two months to 2.8% and 2.6%, a move that mirrored other G10 nations.
In her last comments on March 20, ECB’s President Christine Lagarde expressed difficulty in determining whether the current price pressures stem merely from delays in adjusting wages and services prices, combined with the cyclical fluctuations in productivity, or if they indicate persistent inflationary trends.
Lagarde added that, unlike previous phases of their policy cycle, there are indications that the anticipated disinflationary trajectory will persist. Should the data unveil a significant correlation between the underlying inflation trend and the ECB projections, Lagarde thinks the bank can transition into the phase of scaling back its policy measures.
What to expect in the next European inflation report?
As a result, economists anticipate that Core HICP inflation will rise by 3.0% on a yearly basis in March (from 3.1%), while the headline gauge is seen rising by 2.6% from a year earlier, matching the gain observed in the previous month.
Reinforcing the idea of persistent disinflationary pressures, the advanced Consumer Price Index (CPI) in Germany rose by 2.2% on a yearly basis in March, down from February’s 2.5% gain.
According to the ECB Consumer Expectations Survey (CES), the median predictions for inflation in the next 12 months dropped from 3.3% to 3.1%. However, expectations for inflation three years ahead stayed steady at 2.5%.
When will the Harmonised Index of Consumer Prices report be released and how could it affect EUR/USD?
Eurozone preliminary HICP is due to be published at 09:00 GMT on Wednesday.
Heading into the highly-anticipated inflation release from Europe, the Euro (EUR) is struggling below the round milestone of 1.0800 against the US Dollar (USD), as investors continue to assess the likelihood of the start of the easing cycle by the Federal Reserve (Fed) in June.
According to Pablo Piovano, Senior Analyst at FXStreet, “Looking ahead, the EUR/USD is anticipated to encounter initial resistance at the key 200-day SMA at 1.0833. A move above this zone in a convincing fashion should restore the constructive bias and potentially allow for further gains in the short-term horizon.”
Pablo adds, “On the flip side, a reach of the so-far April low of 1.0724 (April 2) could trigger a deeper decline towards the 2024 low of 1.0694 (February 14).”
Economic Indicator
Eurozone Harmonized Index of Consumer Prices (MoM)
The Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The MoM figure compares the prices of goods in the reference month to the previous month. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.
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Next release: 04/03/2024 09:00:00 GMT
Frequency: Monthly
Source: Eurostat
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
