The euro is drifting in the Tuesday session. EUR/USD is currently trading at 1.1802, up 0.06% on the day.
Eurozone CPI hits 3.0%
Inflation has been a buzzword for central banks in recent months, most notably in the United States. The surge in inflation continues to concern the markets, despite the insistence of the Fed that inflation is transitory and will ease. The ECB finds itself in the unusual position of having to deal with a surge in inflation and trying to reassure the markets that the jump is temporary. Yet this message is unlikely to satisfy the markets, which will be looking for some insight from the Bank with regard to a potential taper.
The ECB recently adopted a revised forward guidance, which states that the ECB will not raise rates unless there is evidence that inflation will persist “durably” at the two percent target. Inflation has been well below the two percent threshold for years but is expected to overshoot this target this year. Will this translate into the ECB tapering its emergency pandemic bond programme in the near future?
Policymakers are expected to discuss at the September meeting the timing of a taper of a pandemic emergency bond programme. Still, the ECB is lagging behind the Fed when it comes to tapering and is unlikely to announce any timelines for tapering before December at the earliest. The Fed is yet to provide a timeline on tapering, and the ECB is unlikely to be any more transparent about its tapering plans.
- EUR/USD is testing resistance at 1.1810. Above, there is resistance at 1.1873
- On the downside, there is support at 1.1725 and 1.1655
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