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Euro-area CPI Falls Under The 2% Target

Published 12/31/2000, 07:00 PM
Updated 01/06/2009, 05:15 AM
TGT
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Release Explanation: CPI measures the average price of a fixed market basket of goods and services purchased by consumers, and therefore give an overall read of Inflationary pressures. It is the most widely used Inflation indicator of Central Banks, Institutions, and Governments. It is used to calculate Cost of Living numbers for Government programs. Each regional Central Bank will have their own CPI Target rate, and each will differ in line with the way they individually want to control the aspects of their own economies.

Trade Desk Thoughts: The strong declines seen lately in the commodity markets, especially in the crude oil’s valuation, has caused the Euro-area CPI go under the 2% target rate faster than any one would have thought a few months back. The release for the month of December shows the CPI read standing at 1.6%, despite earlier this year the CPI hit a record rate of 4.0%. The outlook for inflation clearly lies to the downside now, making the ECB shift its policy from fighting inflation to ensuring liquidity in the financial system. In the last few weeks, some ECB member have said that the bank is likely to cut interest rates if the inflation read drops.

Forex Technical Reaction: The euro tumbled tonight a strong number of pips, as the ECB is seen cutting again next week. The pair fell nearly 250 pips in the overnight session, from which 40 pips came after the release.

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