Inflation sizzling in the eurozone
Inflation has been skyrocketing in the US and UK, giving the Fed and BoE plenty of sleepless nights. Inflation levels had been lower in the eurozone, and ECB President Christine Lagarde has not made inflation a priority, arguing that high inflation would ease. Meanwhile, eurozone inflation for March jumped to 7.5% YoY, up from 5.9% in February and above the consensus of 6.6%. Ahead of the release, ECB Vice-President De Guindos said that inflation should peak in the next two or three months.
Clearly, the ECB brass has no intention of tightening policy in response to accelerating inflation. Lagarde has acknowledged that this stance will put the ECB out of sync with the Fed but has argued that the two central banks are dealing with different economic conditions. According to Lagarde, the war in Ukraine is having a much greater effect on Europe than on the US, which requires different policies from the two central banks.
Lagarde can make a case for not embarking on the same rate path as the Fed, but what happens if inflation does not peak in the next few months, as the ECB is counting on? If that happens, Lagarde could choose to stick to her guns, or she may have to finally begin to tighten policy in order to curb inflation.
The week ended on a high note, as the US employment report was quite strong. Nonfarm payrolls posted a solid gain of 431 thousand, although this was shy of the estimate of 490K. The unemployment rate fell from 3.8% to 3.6% and wage growth rose to 5.6% YoY, up from 5.2%.
- There is weak support at 1.1049, followed by 1.0940
- There is resistance at 1.1114 and 1.1158
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