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Eurozone Inflation Beats Expectations, Yet Euro Is Disappointed

After this week's hawkish central banker whirlwind, traders and analysts were keenly looking forward to today's Eurozone June inflation print to see if it would validate Draghi's unexpected hawkish pivot; the data was released on Friday morning by Eurostat, and while dropping from May's 1.4% headline print to 1.3%, it beat the 1.2% consensus expectations, rising 1.3%. The core print of 1.1% excl. energy, food, alcohol and tobacco likewise beat estimates of 1.0%, and was above May's 0.9%.

Chart courtesy of

Looking at the main headline components, energy posted a sharp decline, rising at 1.9%, compared with 4.5% in May, followed by services (1.6%, compared with 1.3% in May), food, alcohol & tobacco, 1.4%, compared with 1.5% in May, while non-energy industrial goods rose 0.4%, compared with 0.3% in May.

And yet despite the upside surprise relative to expectations,the Euro - at least according to Citi - appears disappointed.

As Citi's Rui Dint notes, the EURUSD is ticking slightly lower on the release of the overall Eurozone inflation print – despite a small upside beat, and asks – why isn’t EUR higher?

His answer: 

After German CPI on Thursday beat by 0.2% points at 1.5% YoY, market positioning seems to have adjusted slightly into today’s data print for a similar upside surprise. Such a print would also increase expectations that the ECB will remove accommodative monetary policy sooner than later, especially in the light of Draghi's willingness to look through weak inflation on Tuesday. However this did not transpire and put together with the fact that the headline print is a YTD low, EUR isn’t trading higher on the data print.

Looking into the details, this was exactly in line with Citi Economics expectations. It previewed: “Base effects, coupled with renewed weakness in oil prices, are likely to shave another ~0.3pp off the headline YoY rate in June solely via the energy component. Fresh food prices have also probably remained quite weak, in line with the past three readings. Core HICP inflation on the other hand likely bounced back to 1.1% YoY, still affected by a different timing of spring holidays relative to 2016.”

EURUSD currently trades around 1.1400 between decent levels on either side – 1.1375-50 is the immediate area to watch on the downside. The kneejerk reaction, however, was clearly lower, suggesting the CPI whisper number was higher.

In summary: the inflation print was neither too hot nor too cold to demolish any potential, if only near-term, hawkish relent by Draghi.