Euro Slips Vs Dollar and Pound after November Inflation Misses Forecasts

Underlying Eurozone inflation pressures remain weak, although unemployment saw a surprise fall in October and the currency bloc's economy is gaining momentum. 

The Euro slipped against its major counterparts Thursday after November inflation for the currency bloc came in lower than was forecast by economists, chipping away at hopes the European Central Bank might consider an early end to its quantitative easing (bond buying) program.

Headline consumer prices rose at a rate of 1.5% during November, according to Eurostat, up from the 1.4% seen in October but below the consensus forecast for a reading of 1.6%.

After stripping volatile food and energy items out from the basket, the more important core inflation measure held steady at 0.9% during the month when it had been expected to rise back to 1%.

Food, alcohol, tobacco and energy prices all rose during the period, delivering the uplift to the headline measure of inflation, although prices of other goods were broadly stable.

"October’s fall in euro-zone unemployment will offer some reassurance to the ECB as it prepares to reduce the pace of asset purchases, but the still-low rate of core inflation in November supports its cautious approach," says Jennifer McKeown, an economist at Capital Economics.

On a brighter note, unemployment in the 17 nation currency bloc edged down by 10 basis points to 8.8% for October, when it had been forecast to hold steady at 8.9%. Unemployment across all 28 European Union member states fell from  7.5%, to 7.4% during the period.

"There are reasons to expect the core rate to pick up a little in the months ahead. The economy is performing very well and spare capacity should be eliminated next year. What’s more, the labour market is still recovering," McKeown adds.

November’s inflation data came amid a host of other economic reports for the Euro area and a nascent upturn in the continental economy that is expected to see the currency bloc grow by around 2.3% for the 2017. This would be the bloc's fastest pace of growth since 2011.

Earlier in the Thursday session, October’s German retail sales were shown falling by -1.2% when compared with the previous month, where they had been expected to rise by 0.3%.

However, this and current political uncertainty is seen as unlikely to knock the German economy, which has been buoyed by stronger global growth and rising exports, off from its current course.

“November’s EC Business and Consumer Survey suggests that the euro-zone’s economic upturn has gained more pace, but inflation expectations are rising only slowly,” says Jack Allen, another economist at Capital Economics.

Allen wrote in a note Thursday that the Economic Sentiment Indicator reported on Thursday is consistent with annualised GDP growth of around 4% in the final quarter. The sentiment index rose from 114.1 to 114.6 during the recent month.

“But still subdued inflation expectations suggest that the ECB is right to be very careful about normalising monetary policy,” Allen adds. “We think that it will end its asset purchases in December 2018, then wait until September 2019 before raising interest rates.”

In October, the European Central Bank prepped markets for the tapering of its quantitative easing (bond buying) program, which is expected to begin in January with a reduction of monthly purchases from €60 billion to €30 billion.

The reduced rate of monthly bond purchases will run until September 2018 as a minimum, according to the October monetary policy update, with the ECB reviewing it throughout next year.

The Euro was quoted 0.24% lower against the Dollar at 1.1822 after the data were released Thursday. It slipped 0.58% against the Pound to 0.8782 and was seen in the red relative to both Canadian and Australian Dollars.

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