THE TAKEAWAY: Euro-zone annual inflation confirmed at 2.2% in December -> Lower inflation could allow for further monetary action -> Euro trading higher
Euro-zone inflation was confirmed to have remained at a two-year low in December, according to today’s release by Eurostat. Consumer prices were 2.2% higher than December 2011, while prices rose 0.4% on a monthly basis. The monthly rise in CPI was higher than an expected 0.3% rise in prices, and a reversal of November’s 0.2% drop in prices.
The lowest annual inflation was seen in Greece at 0.3%, the highest inflation was seen in Estonia at 3.6%. Food and education prices both rose 3.0% from the previous December, while communications costs dropped 3.8% annually. Today’s inflation release confirms an earlier estimate from January 4.
Earlier today, ECB’s Nowotny said he sees no inflation in the Euro-zone, and some deflation pressure.
The European Central Bank decided to keep the interest rate at 0.75% following its January meeting, despite mounting pressures for further rate cuts following two straight quarters of negative growth and predictions for further weakness in the first part of 2013. Lower inflation rates would make it easier to for the central bank to decide to cut the interest rate, which would be Euro negative. However, there are worries that another rate cut could push overnight lending into negative rates.
The Euro climbed significantly against the US Dollar following Nowotny’s comments about his hopes for a Euro-area recovery. EURUSD is currently trading around 1.3300 in currency markets. A recent 11-month high at 1.3404 could provide resistance, while a broken support line around 1.3284 could provide support.
EURUSD DAILY: January 16, 2013
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