Euro steady as Germany’s CPI lower than expected

The euro is steady at the start of the trading week. EUR/USD is trading at 1.1170 in the North American session at the time of writing, up 0.06% on the day.

Germany’s CPI eases to 1.6%

Inflation in Germany slowed to 1.6% y/y in September, down from 1.9% in August and shy of the market estimate of 1.7%. This was the lowest level since February 2021 and was driven by a sharp drop in energy costs. Monthly, inflation was flat, up from -0.1% in August and below the market estimate of 0.1%. Core inflation dropped to 2.7%, down from 2.8% in August and its lowest level since January 2022.

The decline in inflation in the eurozone’s largest economy is typical of what is happening across the bloc. Eurozone inflation will be released on Tuesday with a market estimate of 1.9%, compared to 2.2% in August, which was a three-year low. An inflation reading below the 2% target would be highly symbolic and increase the pressure on the ECB to continue to trim rates in order to kick-start the weak economy.

The ECB remains cautious about rate cuts as services inflation and wage growth remain high. Policy makers are likely to stay on the sidelines in October in order to monitor key data and wait until December before making any rate moves.

US Core PCE Index drops to 0.1%

The Fed appears to have inflation under control and the US Core PCE Price Index, the Fed’s preferred inflation indicator, was within expectations on Friday. The index rose 0.1% m/m in August, a three-month low. This was down from 0.2% in July and below the market estimate of 0.2%. Yearly, Core PCE ticked up to 2.7%, after three consecutive months at 2.6% and in line with expectations.

EUR/USD Technical

• EUR/USD is testing resistance at 1.1164. Above, there is resistance at 1.1202
• 1.1124 and 1.1086 are providing support

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