Euro Reverses Down As Inflation Starts to Slow in Europe

The Euro has been feeling the weight as the ECB rhetoric becomes less hawkish and lower inflation should push it further down

Skerdian Meta•Friday, January 6, 2023•2 min read

Inflation was surging last year but this year consumer inflation exceeded all expectations as CPI (consumer price index) surged above 10%. The Eurozone headline CPI has been there since September, but expectations were for a slowdown to 9.6% in December.

The weather has been warm apart from the Christmas period, so energy prices have been declining, which have had a positive effect on inflation. ECB members have been giving some mixed signals lately, as the Eurozone inflation slows down, so the Euro hasn’t been so convinced recently. It has lagged when other risk currencies have been making some decent gains in the last 2-3 weeks.

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The decline has picked up pace since December

Over the week we have seen inflation numbers slow down in the Euro area member states. Please use the sharing tools found via the share button at the top or side of articles. Headline CPI slowed to 9.6% in Germany, down from 11.3% in November which is more than expectations for December, slipping into single digits for the first time since the summer and providing some relief for the ECB in the battle to control prices. Inflation also slowed down in Spain and Italy, so today’s slowdown in the Eurozone CPI wasn’t out of the blue. Although it will keep weighing on the Euro.

Eurozone December Prelim CPI

December preliminary CPI YoY +9.2% vs +9.7% expected
PriNovember CPI YoY +10.1%
Core CPI YoY +5.2% vs +5.0% expected
Prior Core CPI YoY +5.0%

The drop in headline annual inflation is expected after the softer readings seen in Germany and France but there’s a massive caveat to the report to take note of. That being core annual inflation actually ticked higher, with the reading coming in at 5.2% compared to the 5.0% reading in November. If anything else, that will vindicate the ECB to stay on the more hawkish path.

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Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.