Euro steady awaiting US CPI reading

Published on 10.05.2023 13:35

There are further rate hikes coming from the European central bank according to analysts which may benefit the Euro after a speech by ECB President Christine Lagarde who raised concerns about the continuation of higher costs in the Euro block.

In an exclusive interview with Nikkei, European Central Bank (ECB) Lagarde expressed concern over rising prices in the eurozone, saying, "There are factors that can induce significant upside risks to the inflation outlook."

She also noted despite concerns about the banking sector, she indicated that the ECB does "not have a recession in our baseline projection for 2023," and strongly hinted at further increases to interest rates.

Consumer price inflation is running at an annual rate of 7% in eurozone, compared with 5% in the U.S. and 3% in Japan. Prices are rising at a particularly fast pace in Central and Eastern Europe, with inflation exceeding 10% in the Baltic countries. Higher prices are taking a toll on the public and fuelling strikes in Europe, with workers demanding higher wages.

The ECB has to "be extremely attentive to those potential risks ... in particular, in relation to wage increases in various European countries," Lagarde said. "We have a mandate, which assigns us one objective, not two like at the Federal Reserve. Our objective is price stability," she said, and reiterated that she would focus on controlling inflation.

So far today, we have seen the release of consumer price index figures from Germany which hit the market at 0.6 percent on a monthly basis and 7.6 on a yearly basis which was right in line with analysts’ expectations and has failed to move the EUR/USD currency pair.

Looking further ahead today, the main driver of the pair will be the release of CPI figures from the US which is expected to come in the same as last month’s figure at around 5 percent.

Should the number come in higher the Euro will likely be sold off as market participants take positions in the greenback in anticipation of another rate hike next month.