Rise in Eurozone Inflation Stalls, ECB Tipped to Act Again

Inflation in the Eurozone rose by only 0.2% mom and 0.8% yoy in August; disappointing analysts who had expected a 0.3% rise and 0.9% rise respectively.

Unemployment also remained unchanged in August defying the consensus of economists who had forecast it falling a basis point to 10.0%.

The results could make it marginally more likely that the ECB will opt to increase its already substantial package of stimulus measures at its September meeting.

"Even though headline inflation should rise in the coming month, as the drag from energy inflation dissipates, there will be doubts whether the upswing will last over time. We expect the ECB to announce a further extension of its QE programme horizon next week, from March 2017 now up to September of next year," says Nick Kounis at ABN Amro.

When central banks raise stimulus it is generally seen as negative for their currency due to the increase in supply of money, as well the downwards pressure on rates.

The EUR/GBP exchange rate remained just below 1.1800 after the release, whilst the EUR/USD rate actually - counter-intuitively - rose five-hundredths of a cent following publication of the data.

Foreign exchange brokers Foenix Partners’ senior sales trader, Alex Lydall, said the figures showed growth in the bloc was “stagnant.”

Although it was, “a little early to call for further action,” from the European Central Bank (ECB), he argued that ECB President Mario Draghi would be “taking a deep breath,” to calm his nerves after the release, and the worse-than-expected result would put the ECB’s policy outlook back on centre-stage after the recent hyper-focus on the Fed.

German Unemployment Remains Unchanged

Also out from the euro-area was unemployment data from Germany in August, which came out at 6.1% in August, from 6.1% in July and the same expected.

The data shows no signs yet of damage from Brexit due to falling orders to the UK which is a key destination for German manufactured goods.

It indicates less of a short-term impact on Germany from Brexit than had been expected, and marginally lowers the probability of the ECB pulling the trigger in September – a positive for the euro.

However, the single currency failed to react following the data as traders kept their ammunition for the more important inflation data released on shortly after, which was in the end negative for the outlook for the euro as it showed CPI stalling in August.

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