The Eurozone Harmonized Index of Consumer Prices (HICP) rose at an annual rate of 2.1% in August, after having risen 2% in July, the official data released by Eurostat showed Tuesday.
Markets expected a 2% readout.
Developing story, please refresh the page for updates.
This section was published at 7.33 GMT as a preview of the Eurozone HCIP inflation data.
The Eurozone Prelim HICP Overview
The Eurostat will publish the preliminary Eurozone inflation data for August later this Tuesday at 0900 GMT.
The Harmonised Index of Consumer Prices (HICP) is expected to rise 2.0% year-over-year (YoY) in August, while the core inflation is seen easing to 2.2% in the same period, compared to the previous reading of 2.3%.
Last week, the preliminary German Consumer Price Index (CPI) rose by 2.2% in August, against 2% increase in July and above market forecasts of 2.1%, though remaining close to the European Central Bank’s (ECB) 2% target.
How could the Eurozone Prelim HICP affect EUR/USD?
EUR/USD remains steady following its five-day winning streak, trading around 1.1700 ahead of the bloc’s HCIP inflation data and the US ISM Manufacturing PMI.
A hotter-than-expected preliminary inflation data could support the EUR/USD pair to approach 1.1830, the highest since September 2021.
However, a softer print could put downward pressure on the EUR/USD pair to test the nine-day EMA of 1.1680, followed by the 50-day EMA at 1.1615.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.
The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
Source: Eurozone Preliminary HICP inflation rises to 2.1% YoY in August vs. 2% expected
