EUR Up on Inflation Beat Despite Draghi Warning

US futures are pointing to a slightly higher open on Friday as we await economic data and earnings for the first quarter. It’s already been a lively start to trading in Europe where we got some surprising numbers from the UK and the euro area.

Euro tests highs as inflation accelerates in April

The euro has made some strong gains this morning, a day after having fallen back below 1.09 against the dollar as ECB President Mario Draghi warned that the path back to the central banks inflation target will be gradual. He did, however, warn that we should see a pick-up in inflation this month and that it would remain around this level until the end of the year, and this morning’s flash CPI data has confirmed the first part of his forecast.

Prices rose more than expected in April, with the CPI measure rising to 1.9% year on year – in line with the ECBs target of below but close to 2% – and the core reading jumping 0.4% to 1.2%. With Draghi acknowledging this spike in yesterday’s press conference, it’s unlikely that it’s going to change the outlook as far as the ECB is concerned but it will likely feed into the discussion come June, when many think the central bank will start planning for future tapering of its asset purchases.

Dollar in Trouble Ahead of May Day

Sterling higher as consumer feels inflation pinch

The pound is also trading higher again this morning despite GDP data for the first quarter coming out weaker than expected at 0.3%. It would appear that the consumer is starting to feel the inflation bite, with the services sector growing at its slowest rate in two years, significantly below the levels achieved in the previous two quarters. Still, sterling is testing 1.2950 against the dollar and close to breaking through a key technical level that could open up a move towards 1.3450, having entered back into last year’s June to September range.

DAX Yawns as Eurozone CPI Beats Estimate, US GDP Next

Weak US Q1 GDP number expected for fourth year

There’s still plenty of data to come from the US today, including its own advanced GDP reading for the first quarter, which is expected to be 1.3% on an annualised basis. While this may seem weak and trigger concerns about stalling growth, it is worth considering that first quarter growth has been very low in each of the last three years but has recovered in the following quarters on each occasion. There’s currently no reason to doubt that the same will happen again, should we see another disappointing first quarter reading. We’ll also get UoM consumer sentiment, employment cost index and Chicago PMI data, and hear from Fed officials Lael Brainard and Patrick Harker. Earnings season also continues with Exxon Mobil, Chevron and General Motors among those reporting.

For a look at all of today’s economic events, check out our economic calendar.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.