Fundamental Comment

Euro extends losses despite improvement in eurozone inflation

Euro extends losses despite improvement in eurozone inflation

Inflation rates in the euro area unexpectedly rose during the month of June, while core inflation levels fell again, which prompted the euro to decline and expand its losses during today's trading session.

The consumer price index in the euro area increased by 0.3% during the month of June, after recording the lowest level in four years at 0.1% in May, while expectations were for a decrease of 0.1%.

On the other hand, the annual core CPI continued to decline to record 0.8%, in line with expectations, and the previous reading was 0.9%.

The improvement in the CPI was underpinned by increases in household spending on food and beverages, which outweighed the decline in energy prices.

The European Central Bank targets inflation at 2%, but it has failed to reach this target for seven years, and inflation is expected to remain weak at least until 2022 because of the stagnation caused by the Corona virus.

The expectations of the European Central Bank indicate that inflation could remain at zero or close to zero for the rest of 2020 and rise only in the second quarter of 2021.

Policymakers had hoped that massive government wage subsidies would help reduce household income losses, in addition to a mitigating monetary policy that aims to limit the damage to the economy and bolster confidence to prevent a serious downturn.

The euro plunged versus the U.S. dollar to record the lowest level in two days at 1.1197 after it opened trading today at 1.1234. This comes after the gains recorded by the European single currency yesterday, as it soared to a high of 1.1286.

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