EUR strengthened against its major rivals in the European session on Thursday as investors digested the preliminary consumer price index (CPI) figures for December from France while awaiting flash inflation data from Germany.
France’s National Institute for Statistics and Economic Studies (INSEE) reported today that its flash estimates showed that the annual inflation rate in the Eurozone’s second-largest economy accelerated to 3.7% in December from 3.5% in the previous month. Economists had forecast the inflation to quicken to 3.8%. Meanwhile, the harmonized index of consumer prices (HICP) for France, which is used by the European Central Bank, increased to 4.1% YoY from 3.9% YoY in November, matching economists’ expectations.
Later in the day, the Federal Statistical Office (Destatis) - will report its inflation report for Germany. The inflation measures from the German states indicated that price growth in the euro area’s largest economy also fastened in December.
The preliminary CPI figures for the Eurozone, as a whole, will be released Friday. Economists expect the region's headline annual inflation rate to accelerate to 3.0% from 2.4% in November, and the core annual inflation rate moderated to 3.4% from 3.6%.
Market participants believe a stronger-than-expected rebound in inflationary pressures may prompt the markets to reprice their dovish ECB rate expectations, suggesting around 170 basis points of interest rate cuts in 2024.
In addition, investors weighed the final data from S&P Global, which showed that business activity in the Eurozone contracted slightly less than initially estimated. The region's Composite Purchasing Managers' Index (PMI) for December was revised upwardly - to 47.6, unchanged compared to the prior month’s reading and slightly better than a flash estimate of 47.0.