There was reduced liquidity in the currency markets today due to the US Thanksgiving holiday. The focus was on some regional inflation data out of Europe – particularly from Germany and from Spain. Weak inflation numbers weighed on the euro as deflationary fears arose and reinforced expectations that the European Central Bank will ease monetary policy more aggressively.
Low inflation is a real concern as it is the core reason for ECB stimulus measures. So when Europe’s largest economy – Germany – released data that showed annual inflation fell to 0.5% in November, its lowest level since February 2010, this pressured the euro. The figure was harmonized to compare with other European countries. It fell short of forecasts for a reading of 0.6%. Also, Spanish consumer prices dropped by 0.5% year-on-year and this fuelled fears of deflation in the fourth largest Eurozone economy. This was more than the forecast for a 0.3% drop and a 0.2% decline a month earlier.
Data that showed German consumer sentiment picking up for a second month was shrugged off by the markets and did little to support the euro which traded most of the European session below the key 1.2500 level.
Comments made by ECB President Mario Draghi who spoke in Helsinki today were also in focus. Draghi warned that the impact of the ECB’s stimulus measures need time to materialize. Tomorrow’s Eurozone CPI number will be closely watched and will be a key risk event for the euro as the ECB will regard this number when making monetary policy.
Sterling drifted lower in thin volumes to fall below 1.5750 after hitting a session high of 1.5824.The pound has been keeping firm after UK GDP data came in line with forecasts earlier this week.
There were no US data releases today due to the Thanksgiving holiday in the US. The dollar traded between 117.22 and 117.72 versus the yen so far today. Markets will look to Friday’s slew of data out of Japan which could impact the dollar/yen pair. The data will include inflation, retail trade, industrial production and household spending.