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Explaining why the EUR/USD reaction is relatively muted after lower EU inflation data

The EU March HCIP flash inflation report has just been released and it has fallen by more than expected in both the annualised readings. The yearly rate fell to 2.4%, below the previous reading of 2.6%. The core rate fell to 3.1% from 3.3%. The immediate reaction saw the EUR/USD slip. The point about this data, is that it is evidencing a slow down in price pressure (barring revisions of course) and that is pushing the case for the ECB to cut rates ahead of the Fed and a June ECB rate cut is now very much on the cards. Naturally, this has significant implications for the Euro, but at the same time, the ECB is very mindful of that. That is because a lower Euro will only act as a headwind to falling inflation down the road. That said the immediate reaction to the data in the EUR/USD has been pretty muted so far. However, once the US data is out of the way later today, the impact of this will be factored into how the EUR/USD ends the session, dependent upon what that US ADP and ISM data delivers. The EUR/USD is just now trading at 1.0767

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