Euro edges lower despite positive inflation report

The euro has posted slight losses on Friday. EUR/USD is down 0.28%, trading at 1.0837 in the North American session at the time of writing.

Eurozone CPI steady, core CPI falls

The April inflation report showed that headline inflation remained steady at 2.4% y/y, holding at its lowest level in almost three years. Services inflation and energy prices declined, while food, alcohol and tobacco prices were slightly higher. Monthly, headline CPI eased to 0.6%, down from 0.8% in March and matching the market estimate.

The most significant news was the decline in core CPI, which excludes energy and food, alcohol and tobacco and is a more accurate indicator of inflation trends. The core rate fell to 2.7% y/y, down from 2.9% in March and matching the market estimate. Core CPI has now decelerated nine straight times and has dropped to its lowest level since February 2022. The European Commission announced earlier in the week that eurozone inflation is expected to drop to 2.5% in 2024 and fall to the 2% target in the second half of 2025.

The European Central Bank has done a good job slashing inflation, which was running at 7% a year ago. The ECB has signaled that it is ready to shift policy and lower rates at the June meeting.
ECB President Lagarde has widely hinted at a June cut but has remained mum about what happens after that. Lagarde doesn’t want to raise expectations of a series of rate cuts and then disappoint the markets if the ECB doesn’t follow through.

There are no key economic releases out of the US today, leaving FedSpeak as the highlight of the day. Three voting members of the FOMC, Christopher Waller, Mary Daly and Adriana Kugler will deliver speeches which could provide some insights into future US rate policy. FOMC members have sounded rather hawkish, saying that restrictive policy is working and there is no rush to lower rates.

EUR/USD Technical

• EUR/USD is testing support at 1.0850 and is putting pressure on support at 1.0832
• There is resistance at 1.0872 and 1.0890

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