Inflation in the Eurozone fell for the first time since July, AUD one of the best performing currencies in the G10| FXMAG.COM

Summary:

On Wednesday, the dollar gained support as Bureau of Labor Statistics data.
The ECB is expected to pause the pace of interest rate hikes.
AUD benefited from the Renminbi's latest rally.

U.S labor statistics offer USD support

The market is reflecting bearish signals for this currency pair. The annual inflation rate for the Euro Area is 10% in November, down from 10.6% in October and marking the first decrease since July 2021. Energy, food, alcohol, and tobacco are not included in core inflation figures, which remained stable and had a 5% reading that was in line with expectations. The figures, together with weaker readings from Belgium, Germany, and Spain, will undoubtedly give the European Central Bank much to think about before its meeting on December 15. The market's concern is if they are prepared for the Fed to slow the pace down to 50bp after raising interest rates by 75bp at its last two sessions (Markets currently pricing in 54bp). A slowdown may not be in the cards, according to recent remarks from ECB President Christine Lagarde, who claimed that inflation has not yet peaked.

On Wednesday, the dollar gained support as Bureau of Labor Statistics data suggested that the U.S. economy's recovery from the depths of a previous technical recession in the third quarter was more robust than previously thought.

Inflation in the Eurozone fell for the first time since July, AUD one of the best performing currencies in the G10 - 1 EUR/USD Price Chart

ECB expected to slow interest rate hiking cycle

The market is reflecting mixed signals for this currency pair. Following the announcement of Eurozone inflation statistics that arrived at a lower-than-anticipated rate, the European Central Bank (ECB) is expected to pause the pace of interest rate hikes with a 50 basis point move the following month. However, considering that core inflation is set at 5%, substantially over the ECB's preferred level of 2.0%, the ECB cannot afford to relax just yet.

With prices still relatively high, the British pound is still in a phase of consolidation.

Inflation in the Eurozone fell for the first time since July, AUD one of the best performing currencies in the G10 - 2 EUR/GBP Price Chart

AUD one of the best performing G10 currencies

Midweek trading saw a further decline in the Pound to Australian Dollar exchange rate from recent highs around 1.80. Going forward, it is probable that the pair will fluctuate between 1.7660 and 1.8046 as a tug-of-war between the strong U.S. Dollar and the strengthening Chinese Renminbi takes place. Australia's Dollar was one of the best-performing currencies in the G10 on Wednesday as the Asian region's currencies benefited from the Renminbi's latest rally and the antipodean currency itself seemed to benefit from official data that revealed a surprising drop in Australian inflation rates for October.

Australian inflation decreased in October from an annual rate of 7.3% to 6.9%, whereas the majority of economists had predicted a rise to 7.6%. This downward surprise was caused by lower price increases for the majority of items included in the consumer price index.

Inflation in the Eurozone fell for the first time since July, AUD one of the best performing currencies in the G10 - 3 GBP/AUD Price Chart