On Thursday, the euro posted strong gains. EUR/USD traded at 1.0749, 0.57% higher than the previous day.
German CPI ticks higher
German inflation was 8.7% y/y for January, an increase of 8.6% from December. CPI increased 1.0% in January, after a December reading of -0.8%. The report shows that German inflation remains high and it’s still too early to talk of a peak. The good news is that we seem to have avoided a nasty double-digit inflation thanks to lower energy costs due to the warm winter in Europe.
The ECB increased rates last week by 50 basis point, bringing the cash interest rate to 3.0%. The cash rate remains well below that of all other major central banks – the Fed’s rate, for example, is at 4.75%. The ECB has noted that core inflation is a more reliable indicator than headline inflation and remains much higher than expected. Next meeting of the central bank is scheduled for March. 16: The markets have predicted a 50-bp rise. The future is unknown. The ECB could pause to evaluate the impact of its tightening cycles or continue to hike, possibly in small increments of 25 bp until it is clear that core inflation is falling.
The ECB rate policy is primarily geared towards taming inflation ,…