Euro Slides as Inflation Jump to Cause Sleepless Nights at the ECB

PoundSterlingLIVE – The rule of thumb is that upside inflation surprises tend to be supportive of a currency, as they elicit additional central bank .

It is therefore somewhat counterintuitive that euro exchange rates were lower following official that printed at higher than expected levels.

The fall in the Euro does, however, make sense when we consider that the European Central Bank (ECB) will now likely have to squeeze the life out of the Eurozone’s economy with higher interest rates to cut inflation.

This appears to be the narrative at play after the Euro fell in the minutes after Eurostat reported that Eurozone inflation rose 0.6% month-on-month in August, a sharp increase on July’s -0.1% and exceeding expectations for 0.4% growth.

Year-on-year the figure stood unchanged at 5.3%, but above expectations for 5.1%.

One potential area of relief for the ECB is that the core inflation figure met expectations at 0.3% month-on-month and 5.3% year-on-year.

Following the data release the Euro to Dollar exchange rate fell extended its daily loss to half a percent at 1.0876, and the Euro to Pound rate fell 0.20% to 0.8568.

Eurostat also reported that in July 2023, the euro area seasonally-adjusted unemployment rate was 6.4%, stable compared with June 2023 and down from 6.7% in July 2022. The EU unemployment rate was 5.9% in July 2023, also stable compared with June 2023 and down from 6.1% in July 2022.

An original version of this article can be viewed at Pound Sterling Live