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31 May 2022

Euro's Losses fall Deeper after Inflation data Hit a Record High

The Index Today

The euro's losses fall deeper on Tuesday after data showing Euro Zone inflation hit a record high in May, but traders expect that the European Central Bank will soon hike rates to keep the Euro on track for its best monthly performance in a year.

Rising inflation is usually considered to be a sign that there will be a tighter monetary policy. The ECB is wary that interest rate hikes might tip the economy into a recession, however, especially as the European Union's plans to cut its reliance on Russian energy could push inflation even higher.

Stuart Cole, chief macro strategist at Equiti Capital said, "The dollar has also advanced today on back of higher oil prices and that is proving to be a bigger factor, and the risk of a recession is seen as greater in Europe than in the U.S."

Recent inflation data in the 19 countries sharing the euro accelerated to 8.1% in May from 7.4% in April, beating expectations for 7.7% as price growth continued to broaden, indicating that it is no longer just energy pulling up the headline figure, reported by Reuters.

Against the dollar, the euro extended its drop to fall 0.6% to $1.0777 before trimming some losses. On a monthly basis, the single currency was up nearly 2%, its best monthly gain in a year. The dollar index was at 101.71, up 0.4% on the day, having fallen to a five-week low of 101.29 overnight.

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