Euro Gains as Unemployment Rate and Core Inflation Beat Estimates

The euro moved higher against the US dollar on Monday to begin the week on a positive note, following the release of surprisingly positive retail sales in Germany and higher than expected core inflation rate in the euro area. The shared currency had moderate gains against the British pound today, supported by a report that revealed a lower unemployment rate than forecasted last month.

Annual inflation rate within the euro area remained unchanged in July from 1.3% in June, according to a fresh estimate from Eurostat, the statistical office of the European Union. Prices of energy and services posted the biggest annual gains at 2.2% and 1.5% this month, respectively. Meanwhile, industrial goods had the smallest change in prices over the last 12 months, increasing 0.5% following a reading of 0.4% in June.

The Eurostat’s report added that the core consumer price index, which excludes energy, food, and tobacco prices, rose to 1.2% in July from 1.1% in June, beating analyst estimates of 1.1%. The index is one of the economic indicators that policymakers within the European Central Bank use when determining the health of the economy ahead of policy changes.

Following its last meeting on July 20, the central bank maintained its monetary policy unchanged. European Central Bank President Mario Draghi emphasized the importance of moving patiently towards monetary policy normalization. However, today’s data stirred speculation that policymakers may consider reducing quantitative stimulus soon. The central bank’s next monetary policy meeting is on September 7.

These speculations were further stoked by a separate report from Eurostat. The report stated that unemployment rate dropped from 9.2% in May to 9.1% in June, which was a lower rate than expected. Unemployment in the euro area did not touch that level since February 2009, which added to increasing evidence that the European Union’s economy remains on a healthy path.

Adding to support the euro received today, Destatis, the German statistical office, stated that retail sales jumped to 1.1% in June from 0.5% in May. The data far exceeded forecasts of a 0.2% gain, which improved investors’ outlook for consumer demand in Germany.

EUR/USD rose to 1.1784 as of 15:25 GMT on Monday after touching 1.1792 at 15:15 GMT, the pair’s highest level since January 2015. EUR/USD began the week at 1.1749. EUR/GBP was at 0.8941 after climbing to 0.8954 at 09:35 GMT. EUR/GBP started trading today at 0.8935.

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