Germany’s CPI Slows to 2.2% YoY, Core Inflation Stays High at 3.0%

Daily EUR/USD In the short term, this data is unlikely to prompt immediate changes in ECB monetary policy, but it will influence market sentiment. The Euro may face downward pressure, as the lower month-on-month CPI and HCPI figures signal easing inflationary pressures, potentially reducing the urgency for additional interest rate hikes.

Traders may interpret the -0.7% decline in HCPI as a signal of a slowing German economy, which could weigh on overall Eurozone growth expectations. This is particularly relevant as Germany’s inflation figures heavily influence ECB deliberations. A more dovish perception of ECB policy could lead to weaker demand for the Euro in Forex markets, especially against currencies of economies with tighter monetary policies, such as the US dollar.

Long-Term Impact on the Euro Looking ahead, the Euro’s trajectory will depend on how inflation evolves across the Eurozone. If core inflation persists at elevated levels despite falling headline figures, the ECB may opt to maintain a hawkish stance, supporting the Euro in the medium to long term. However, if inflation continues to ease, there could be downward adjustments in interest rate expectations, pressuring the currency over time.

Additionally, the divergence between headline and core inflation suggests structural price rigidities, particularly in sectors like housing and services, which could underpin sustained price pressures. This might require the ECB to keep interest rates elevated for longer, potentially providing a floor for the Euro in the long run.