German Inflation Drops as Disinflationary Trend Continues

German CPI, Euro News and Analysis

• German disinflation marches on – prices rise at a slower rate in November
• Upward revision to US Q3 GDP upstages the CPI data
• EU Inflation data out tomorrow and is expected to reveal further progress

Inflation in Germany dropped to 3.2% compared to November 2022 and represented a further decline from October’s 3.8% year-on-year print. More notably, the month-on-month decline was 0.4% and sharper than the -0.2 estimate.

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EU inflation data is due tomorrow with consensus estimates indicating another drop in the headline and core measures of inflation. The rate of decline in inflation has markets pricing in rate cuts in 2024 at a similar pace to that expected from the Fed – just over 100 bps worth of cuts. However, inflation could drop more in EU as the European economy hasn’t been anywhere near as resilient as the US, meaning declining activity could accelerate existing economic headwinds, posing a threat to the Euro.

The inflation print was soon upstaged by the upward revision to US GDP growth relating to the third quarter, resulting in an intra-day move lower on the 5-minute time frame.

EUR/USD 5-Min chart

Source: TradingView, prepared by Richard Snow

The daily EUR/USD chart sees the pair pulling back today after Hawkish comments from Fed Board Member Waller anticipated the first rate cut in the US taking place in 3-5 months. The dollar sold off notably thereafter. US PCE data tomorrow can further influence the direction of the pair tomorrow as well as Powell’s potential push back to Wallers rate cut comments.

EUR/USD Daily Chart

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX