The euro continues its gains today despite weaker than expected German inflation growth

Market Analysis on behalf of Samer Hasn Market Analyst and part of the Research Team at XS.com

30th April 2024: The euro is recovering against the US dollar today, regaining the 1.0720 level, and rising by 0.25% at 12:30 p.m. GMT, after Friday’s losses.

The euro’s gains come despite weaker-than-expected inflation growth in Germany for April and the continued decline in Eurozone bond yields, as the continued decline in US Treasury yields helped moderate the negative impact of today’s data.

Today’s trading also comes as markets await a series of US labor market data this week, which will help markets reinforce their hypothesis about the potential path of the Federal Reserve’s monetary policy in the coming months.

While the extremely negative surprise from the US economy may help the euro cut more of its losses against the dollar, even if this is not possible with the strong economic activity that we have witnessed over the past months. This type of surprise may be able to revive hope that we could see interest rates during the second half, which has been largely dissipated with the shocking inflation data of the previous months.

While the markets do not expect an interest rate cut of 25 basis points in June, more than a probability of only 11% and 28% in July, according to the CME FedWatch Tool.

As for the data, the Consumer Price Index in Germany recorded, in the preliminary reading, a growth from 0.4% to 0.5% on a monthly basis in this April, which was weaker than expected at 0.6%. On an annual basis, inflation held steady at 2.2% after it was expected to grow to 2.3%.

This week will also see ADP non-farm employment and JOLTS data in the United States for April and March, respectively, in addition to Bureau of Labor Statistics data on non-farm employment, unemployment rate, and average hourly earnings growth for April.