Eurozone March HICP inflation revised down to 1.3% y/y from 1.4% y/y reported initially. This follows the downward revision to Italian numbers yesterday and still saw the headline rate reversing the dip to 1.1% y/y in February and moving back to the level seen at the start of the year. HICP averaged just 1.2% in Q2, down from 1.4% in Q4 last year. However the first quarter this year was impacted by special factors and the variations over the last couple of months were mainly due to base effects. Core inflation actually held steady throughout the last three months at 1.0% y/y, up from 0.9% through the last quarter of 2017. So both hawks and doves at the ECB will find something to argue with there, but on balance, the doves, which still maintain that there is not convincing evidence that underlying inflation trends are on a sustainable path higher, clearly are still in the majority and today’s number won’t see them changing their minds. More signs then that the ECB will hold steady next week and remain evasive on the phasing out of QE.
Earlier we also saw UK March inflation data also unexpectedly soft, with headline CPI falling to a 2.5% y/y rate from 2.7% and core CPI ebbing to 2.3% y/y from 2.4%. The respective median forecasts had been for 2.7% y/y and 2.4%, respectively. The headline rate is the lowest print since March last year. The data puts into question the possibility for the BoE to hike rates at its May policy meeting, and both sterling and UK yields have fallen as a consequence. The largest downward contribution came from clothing and footwear, along with the impact of changes in the budget cycle with regard to alcoholic drinks and tobacco. We expect CPI to remain relatively benign in the months ahead before eventually retracing to the BoE’s 2% target. The trade-weighted value of sterling has been broadly stable for a protracted period, with the steep losses the currency saw following the Brexit vote in mid 2016, which had ignited inflationary pressures, having fallen out of year-on-year comparisons.
EURUSD and GBPUSD both weakened following the Inflation data dump. The Crossing EMA Strategy on the H1 time-frame achieved a total net gain of 38 pips from this mornings moves. For further information on this simple moving average strategy that keeps probability on your side join our Live Analysis Webinars every Tuesday at 11 am GMT.
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