Euro Trims Declines against Dollar Following Spanish Inflation

On Wednesday, the euro steadied after it had dropped to a low of six days, as it reacted to the inflation data that was released in Spain and Germany. The conflicting data has created a rather confusing environment for the European Central Bank (ECB) when it comes to developing its monetary policy.

Movements in the euro

There was a 0.1% reduction in prices in the state of North Rhine-Westphalia in Germany in June, as compared to May, and the data resulted in the single European currency declining in early London trading. But, the euro was able to trim those losses and flattened on the day, after the release of more data showing that there had been a 10.2% rise in inflation in Spain in the 12 months to June.

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This was a significant rise from May, when it had been 8.7%, and was the first time that it had surpassed 10% after April 1985. Market analysts said that the CPI inflation data in Spain had eased some of the pressure on the euro. This had come after the decline in Germany’s CPI data that had put the hawkishness of the ECB into doubt.

Now, investors were keeping their eye out for Germany’s national inflation data, along with a panel at the annual forum of the ECB in Portugal, where three prominent central bankers would be speaking. Christine Lagarde, the ECB President, Jerome Powell, the Chairman of the Federal Reserve, and Andrew Bailey, the Governor of the Bank of England (BoE) would also be speaking.

No insight into ECB’s plans

Speaking on Tuesday at the ECB’s forum, Lagarde did not provide any clear insight into what path the central bank would be taking in regard to interest rates. It is widely expected that there would be a hike in the interest rate in July, which would be a first for the ECB in over a decade. But, there is no clarification regarding the magnitude of the rise because there are concerns that a sharp rise in borrowing costs could slow down economic growth.

However, another release of data on Wednesday assuaged some of the worries of the ECB about the prospects of economic growth. It showed that the economic sentiment in the eurozone had not declined by as much as expected in June. While retail trade and consumer sentiment had gotten downbeat, there had been an improvement in sentiment in the services and industrial sectors.

The dollar index

The euro had dipped as low as $1.0486 against the dollar in earlier trading but flattened and was trading at $1.0533. Meanwhile, the dollar index that measures the greenback against a basket of other currencies, rose to reach a high of six days.

This was because investors were looking for safety in stocks in the US, as mounting risks of recession resulted in a decline in global stocks. There was a 0.01% rise in the safe-haven dollar index, as it reached 104.43, but it was still below the high of two decades that it had reached about two weeks ago.

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