Euro jumps as Eurozone core CPI rises

The euro is sharply higher on Monday. In the North American session, EUR/USD is trading at 1.1250, up 0.79% on the day.

Eurozone headline inflation was confirmed at 2.2% y/y and 0.6% m/m in April, unchanged from the preliminary estimates. The core rate was also confirmed at 2.7% y/y and 1% m/m. Services inflation rose to 3.9% from 3.5%.

The European Central Bank will be pleased that inflation was unchanged in the final April release but remains concerned about services inflation, which remains persistently high. The ECB trimmed its key rate by a quarter point to 2.25% last month and meets next on June 5. The markets have priced in another rate cut, as the ECB looks to take advantage of stable inflation and lower rates in order to boost economic growth.

ECB and Fed remain cautious due to Trump's tariffs

The ECB can be expected to be cautious with its rate path and continue its data-driven approach. There is much uncertainty surrounding President Trump's tariffs, which has made it difficult for the ECB to make inflation and growth projections. What is clear is that eurozone growth has taken a hit from the tariffs and the outlook and the outlook for global growth has been revised downwards. The damage from the tariffs could be mitigated if the US and China can reach an agreement which removes the tariffs between them.

The uncertainty surrounding US trade policy has also pushed the Federal Reserve into a wait-and-see stance, despite Trump's loud calls for a rate cut. The Fed held rates at this month's meeting and is widely expected to stay on the sidelines again in June. The Fed is waiting for more clarity on the tariff front, but any surprises from inflation or employment data could have a significant impact on rate policy.

• EUR/USD has pushed above resistance at 1.1212. Above, there is resistance at 1.1260
• There is resistance at 1.1171 and 1.1123