EUR/USD shrugs as Eurozone CPI higher than expected

The euro has  on Friday after edged higher on Friday after eurozone CPI was hotter than anticipated. EUR/USD is trading at 1.0848 in the European session, up 0.27% on the day.

Eurozone inflation accelerates in April

The inflation rate in the eurozone surprised the markets with a hotter-than-expected release for May. The headline figure rose to 2.6% y/y, up from 2.4% in each of the past two months and higher than the market estimate of 2.5%. Energy and services prices accelerated while food inflation slowed slightly. Core CPI climbed to 2.9% in May, up from 2.7% in April and above the market estimate of 2.8%.

Will the hot inflation report put a dent in the European Central Bank’s plan to lower interest rates next week? Probably not, as the ECB has strongly signaled it will cut rates and a change of heart now would not be viewed kindly by the markets. The May inflation report was higher than expected but the gain was partially attributable to one-off factors, such as a change in German public transit costs.

Still, May inflation was higher in Germany, France and Spain, an indication that the path to the ECB’s 2% target will be bumpy. The ECB has slashed inflation from a high of 10.6% in 2022 to below 3% and a rate cut will provide relief to consumers and also provide a boost to the sluggish eurozone economy.

In the US, the week wraps up with the Personal Consumption Expenditure price index, which is the Federal Reserve’s favorite inflation indicator. The indicator is expected to remain unchanged at 2.7% y/y and 0.3% m/m, respectively. An unexpected reading could trigger some movement from EUR/USD in the North American session.

EUR/USD Technical

• EUR/USD is putting pressure on resistance at 1.0855. Above, there is resistance at 1.0879
• 1.0822 and 1.0798 are the next support levels

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