While the US dollar was crushing the euro at the start of the new year, the tables turned mid-week. The euro strengthened against the dollar on the back of upbeat inflation data from France. Monetary tightening in the euro area could slow down.
Fall in French inflation
Wednesday’s trading on the Eurodollar market was influenced by positive news from France. Inflation there had unexpectedly fallen below 7 % in annual terms in December. Energy prices, which had slowed their year-on-year growth, contributed to the positive surprise. This makes France the second major economy (after Germany) where inflation has performed better than expected.
Will the ECB policy be easier?
The positive inflation surprise was thus immediately reflected in the euro, which erased previous losses against the dollar and firmed by 0.82 per cent. The markets believe that such inflationary developments could bring about a slowdown in the pace of monetary tightening by the European Central Bank.
However, some experts are tempering their optimism. “We are only a few trading days into the new year, so the current development cannot be overestimated. The fact is, however, that inflation in some eurozone countries is falling faster than expected,” TraderX analyst Michael Brown told Reuters.
