German Inflation Softens Supporting the ECB Bears Ahead of Schnabel

It was a busy day for the EUR/USD on the economic calendar. Prelim inflation numbers for Spain and Germany and Eurozone business and consumer sentiment were in the spotlight.

Early Stats Have a Muted Impact on the EUR as China Jitters Ease

Early in the European session, Spanish inflation had a muted impact on the EUR/USD despite Spain’s annual inflation rate softening from 7.3% to 6.8%. Economists forecast an inflation rate of 7.4%.

However, a rise in the Eurozone Economic Sentiment Indicator (ESI) from 92.7 to 93.7 delivered EUR/USD support.

According to the EU Commission, the Indicator increased for the first time since February, with the Employment Expectations Indicator (EEI) rising by 2.0 points to 107.4.

While the indicators were upbeat, the inflation numbers from Spain raised more uncertainty toward ECB monetary policy, pegging the EUR/USD back from a return to $1.04.

German Inflation Slides, Easing Bets of a 75-Basis Point December Hike

In November, Germany’s annual inflation rate softened from 10.4% to 10.0%.

According to Destatis,

• Energy and food prices have risen sharply since the beginning of the Ukraine war.
• Food prices were up 21% compared with November 2021, with energy prices up 38.4%.
• Month-on-month, consumer prices fell by 0.5%, partially reversing a 0.9% increase from October.

EUR Respond to German Inflation Numbers

Ahead of Germany’s inflation numbers, the EUR/USD rose to a high of $1.03946 before easing back.

However, in response to the German CPI report, the EUR/USD eased back from day highs. The latest figures supported the ECB doves, with the EUR falling from a high of $1.03845 to a low of $1.03615.

At the time of writing, the EUR/USD was up 0.23% to $1.03647.

What’s Next for the EUR/USD?

ECB member Isabel Schnabel will speak today. She will need to take a more dovish stance to surprise the markets.

Last week, Schnabel favored more aggressive policy moves to target inflation, saying,

“Incoming data so far suggest that the room for slowing down the pace of interest rate adjustments remains limited, even as we are approaching estimates of the ‘neutral’ rate.”

However, Schnabel also noted that policy should remain data-dependent, which placed greater emphasis on today’s inflation figures.

US consumer confidence will also draw interest along with FOMC member chatter.