The euro took a bit of a tumble on Thursday as inflation in the eurozone dropped to 8.5% in February, down from 8.6% in January. This drop came as a bit of a surprise to investors, who had been expecting inflation to remain high based on recent national readings. It just goes to show that even the best and brightest can be caught off guard sometimes.
Despite the drop in inflation, market reaction remained pretty calm after the euro rose 0.9% against the dollar on Wednesday. Inflation is always a bit of a balancing act, after all.
German Inflation Higher Than Expected
Speaking of surprises, prices in Germany rose higher than expected last month, which led to the euro’s biggest daily jump in a month. France and Spain had similarly strong readings, leading investors to believe the European Central Bank (ECB) will continue raising interest rates. Investors are expecting a 100-basis point increase in March and May, followed by around 4.1% by the end of the year.
Euro Weakened Against Dollar
The dollar index, which measures the US currency against six others, rose 0.43% to 104.82. It seems the greenback is giving the euro a run for its money (pun intended).
Despite investor optimism surrounding the ECB’s interest rate hikes, the euro dropped 0.5% against the dollar to $1.0618. It looks like it’s not all sunshine and rainbows for the euro, but who knows what surprises the markets have in store for us next?
Meanwhile, sterling was held back by remarks from Bank of England Governor Andrew Bailey. He said “nothing is decided” on future rate increases, causing traders to trim back bets on higher rates. Sterling was down 0.46% to $1.1970. It seems like the Bank of England is playing it close to the vest.
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