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Forex Trading

What is The Impact of Eurozone CPI Data on Currency Inflation


July 22, 2021
What is The Impact of Eurozone CPI Data on Currency Inflation

The consumer price index (Eurozone CPI data) measures inflation in an economy for the cost of goods and services. This figure has a substantial effect on the currency value of nations’ currencies.

Simply put, consumer price indexes estimate the weighted average of fixed-basket price indices and services, such as food prices, energy prices, and transportation expenses. Economists use CPI data to calculate the price changes in people’s cost of living.

What is CPI?

Consumer price indexes, popularly known as CPIs, are essential economic indicators released frequently by the leading economies to provide an insight into inflation levels and present growth. Inflation tracked via consumer price indexes evaluates the evolution of prices, especially the cost of goods, services and purchasing power in an economy.
Whenever the rate of inflation is meagre, central banks choose to reduce interest rates to induce economic activity. On the other hand, when the inflation is tremendously high, banks raise interest rates to stabilise the prices. Consumers incline towards saving money instead of spending it when interest rates rise due to the returns generated on their  the money by keeping it in banks.

In the European stock markets, CPI data is one of the essential indicators tracked by forex investors. When it comes to the US dollar, for instance, the release of CPI data by the Bureau of Labor Statistics can generate significant movements in the dollar’s value against other major currencies worldwide.

Why CPI Figures Matter to Forex Traders

Most European stock markets often see CPI indicators as major market news. The data is essential in the European stock market because the annual inflation rate influences all decisions undertaken by the central banks of individual countries to regulate monetary policy.

Banks have the mandate to regulate inflation in the eurozone at an optimum level, which means that policymakers have to increase and decrease interest rates as a technique to attain target levels. They also enact various policy prescriptions, including expanding the money supply and bond-purchasing agreements to increase economic production.

Usually, individuals trading in forex sees inflation figures, price rise in energy component, development in energy prices, and employment as a fresh record that dictates the central banks’ decisions to maintain, increase, or decrease the existing interest rate levels.

Factors to Consider When Using CPI Data to Trade

Traders using CPI data to impact their trading decisions should assess the market’s inflation anticipations and the currency’s outcomes if the expectations are missed. As with major releases, it’s advisable to avoid having an open position straightaway. Investors should wait for a couple of minutes after the release before searching for the perfect trades as spreads can hugely differ before and after quarterly reports. Else, losses with investors focusing on immediate trades will occur.

After CPI data release and analysis, traders can assess a sample of prices in the market to find out more about its movement. This way, traders will recognise the movement’s short-term strength and technical support, which is crucial in helping them make well-informed decisions.

Why The Eurozone Has Low Inflation

Eurozone core CPI is at a low rate considering the annual growth rates in most countries. While energy prices, especially the development of prices in the oil sector, played a considerable role in the inflation rate, the current level of inflation is different. Monetary consumption expenditure in the European Union countries is among the lowest ever recorded, mainly due to the previous session’s sharp Covid-inspired losses.

Due to the current Covid-19 pandemic, hard-pressed consumers are adjusting to the reduced Eurozone consumer prices. Low consumer price inflation represents  a challenging period for the Eurozone, particularly retailers and investors. Most of the decline is due to sharp losses in price items as shoppers stay away from coronavirus-infected areas.

Still, according to Barron’s, share options at Richemont Shines corporate earnings increased as more and more people continue to buy jewellery and Swiss watches brands from the company. This shows that the buying trend will rise as doctors and health institutions continue to administer the Covid-19 vaccine.

Why Countries Worry About Inflation

There is an inflation scare in various European countries. In the meantime, key news is coming from  Germany. “The inflation in Germany can reach 4%,” says the Bundesbank. Germany’s increased headline inflation initiates some public concern regarding the rising prices.

Germany’s inflation rate should be more than 2% to allow price observation changes throughout the Eurozone. When it comes to Germany’s labor market performance and evolution of prices, employment reports in the country indicate wage agreements are higher than in the Eurozone since the financial crisis days.

All in all, there’s no evidence in the latest consumer price statistics data that Germany is experiencing wage pressure as the average price changes in multiple commodities due to the coronavirus pandemic. As a result, the country incorporates the right containments on price increases, particularly in the employment sector.

Using Currencies to Assess Economy

Economists use national currencies to evaluate a country’s economy because a sample of prices of these currencies is a reflection of what investors think it’s worth. Good investment advice to remember is that a strong economy encourages traders to pay more for the currency, and in the process, boost the country’s economy. A country with stable currency has solid purchasing power, which allows it to import items at reduced prices.

Currency is a popular and robust economic indicator. The only drawback is that it’s a lagging indicator because it displays events that have already occurred. Due to this, forex traders should note that economic movements only form a single part of the assessment. Therefore, they should consider other economic indicators like gross domestic product (GDP), interest rates, stock markets, wages and unemployment, producer price index (PPI) and manufacturing activity.

With the effects of the eurozone consumer price index on a currency’s strength or weakness, forex traders should always anticipate the impact of the central bank’s actions and the impact of major currency pairs.

What the Experts Say

CPI is a crucial indicator that highlights countries annual growth rates and gauges their inflation annual rates. Forex investors evaluate CPI because it can change price observations that strengthen or weaken a given currency against its competitors.

Takeaways for Forex Investors

  • The consumer price index is a massive indicator for measuring the inflation rate.
  • Currency price fluctuations can occur whenever the release fails to meet the experts’ expectations.
  • The data helps banks to regulate consumer price stability.
  • Traders should time their entries to avoid jumping into the widening spreads.
  • It’s advisable to use CPI figures and data alongside other economic indicators.

In conclusion, an ideal online brokerage firm where traders can utilise CPI data to trade is Tixee. Investors can thus register on this platform to experience unmediated information.


Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.

Risk Warning: Our products are traded on margin and carry a high level of risk and it is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved.

Categories: Forex Trading

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