Eurozone CPI falls, but services hotspot remains – Scotiabank

August CPI for the euro area rose 0.2% on the month and was 2.2% higher on the year, down from 2.6% in July and in line with expectations, notes Shaun Osborne, Scotiabank’s Chief FX Strategist.

EUR is strengthening

“Core inflation fell a tenth to 2.8% y/y from the July reading and services inflation edged up to 4.2% from 4%. Core and services inflation suggests a cautious approach to ECB interest rate cuts going forward. ECB Governor Muller said confidence in a September interest rate cut (which is fully priced) was growing, but the policy path after that was “less certain”.

“Softer trends are likely to develop in the euro. A weak close for the week suggests a developing reversal potential on the longer-term charts. The price action on the day rather suggests that the EUR is consolidating this week’s losses in a tight range, but the EUR is clearly having some trouble holding on to even minor gains in the 1.11 area for now.”

“Weakness through 1.1050/55 support may bring the EUR advantage back to 1.0990/00.”