The euro weakened, relinquishing earlier gains to trade at $1.17, following the release of European inflation figures. These figures indicated a softening of price pressures, which led to a decrease in market expectations for a potential interest rate hike by the European Central Bank (ECB) before the end of the year.
- The euro gave up gains and traded at $1.17.
- German inflation fell to 1.8% in December, below expectations.
- Germany’s inflation is under the ECB’s 2% target for the first time since September 2024.
- The EU-harmonized CPI rose 2%, the lowest since July and below expectations.
- French inflation also missed expectations.
- Money markets now see almost zero chance of an ECB rate hike by December 2026.
- Markets see only about 24% probability of a hike by March 2027.
- Investors await full Eurozone inflation results on Wednesday.
- The ECB signaled last month that interest rates are likely to remain on hold.
The revealed economic conditions have a negative outlook for the asset. Reduced inflationary pressures, particularly in major economies like Germany and France, suggest that the ECB is less likely to raise interest rates in the near future. This diminishes the asset’s appeal to investors seeking higher returns and potentially weakens its position against other currencies.