Eurozone Qualifying HICP Overview
On Tuesday at 0900 GMT, Eurostat will publish the preliminary inflation data for the Eurozone for August.
The Harmonized Consumer Price Index (HICP) is projected to increase to 2.0% year-over-year in August, up from the previous year. Meanwhile, core inflation is anticipated to dip slightly to 2.2%, down from 2.3%.
Last week, Germany’s preliminary Consumer Price Index (CPI) reported a rise of 2.2% in August, compared to a 2% increase in July and a 2.1% forecast by analysts, but it remains close to the European Central Bank’s target of 2%.
Impact of Eurozone HICP on EUR/USD
The EUR/USD pair has been holding steady after a five-day winning streak, currently trading near 1.1700 as market participants await the HICP inflation data along with the US ISM manufacturing PMI.
If the inflation data comes in higher than expected, it could push the EUR/USD pair up towards 1.1830, which would be the highest level since September 2021.
Conversely, a weaker inflation report might test the 9-day EMA at 1.1680 and the 50-day EMA at 1.1615, exerting downward pressure on the currency pair.
Inflation FAQ
Inflation is essentially a measure of price increases for a standard basket of goods and services. The headline inflation rate is often expressed as changes on a month-to-month and year-over-year basis. Core inflation, on the other hand, excludes more volatile items like food and fuel. Economists focus on this because it reflects stable trends that are crucial for keeping inflation around the central bank’s target, typically about 2%.
The Consumer Price Index (CPI) gauges how prices change in that basket of goods over time, also expressed in percentage changes over months and years. Core CPI is significant for central banks as it eliminates the noisy effects of food and energy. Often, if core CPI goes over 2%, we can expect rising interest rates, and if it falls below that, rates might drop. Generally, higher interest rates bolster currency value, while falling inflation usually weakens it.
This might sound a bit confusing, but high inflation can actually increase currency value. Central banks often raise interest rates to counteract inflation, which tends to attract investors looking to take advantage of better returns.
In the past, gold was seen as a safety net during high inflation periods. Investors often purchase gold as a safe haven during market instability. However, rising inflation leads central banks to hike interest rates, making gold less appealing as an investment since holding cash or other assets becomes more attractive. Conversely, low inflation can be beneficial for gold, as falling interest rates make it a more enticing option for investors.
