The euro-zone reported a better than expected headline CPI: a drop of 0.1% year over year. Nevertheless, this is still negative. Core CPI stands at 0.6%, showing that oil prices are not the only ones to blame. The unemployment rate also disappoints with 11.3%, following an upwards revision to 11.4% for the previous month.
EUR/USD slips below 1.0720. The low so far is 1.0718.
Italy also published its inflation data at the same time and the data shows a drop of 0.1% y/y, worse than expected in the HICP, while a rise of 0.1% in the national number.
Inflation in the euro-zone was expected to remain negative, with a year over year drop of 0.3% in headline CPI, and a gain of 0.6% in core CPI. Oil prices carry the blame for deflation, but don’t explain the low core CPI that is a result of economic weakness. The unemployment rate was predicted to remain at 11.2%, after several months of falls.
EUR/USD was falling towards the release, trading at 1.0724 mostly due to end-of-quarter strength from the US dollar.
Earlier, Germany reported a better than expected drop in unemployment, but this failed to lift the common currency. The US dollar is back in the game, rising across the board.
The end of the month and the end of the quarter usually see portfolio adjustments that can explain moves that are not based on fundamentals.
More: Euro Will Fall In A Cyclical Upswing: Why & Where To? – Goldman Sachs
Here is how the fall looks on the chart:
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