01.10.202108:50 Forex Analysis & Reviews: Europe at risk of high inflation

Euro did not rally on Thursday despite prerequisites for it. Similarly, pressure returned on pound after a brief price increase.

One of the reasons was the data on the unemployment rate in Germany, which remained unchanged instead of declining. The Federal Ministry of Labor and Social Affairs said it stayed at 5.5% rather than dropping to 5.4%. But the good news is that the number of unemployed decreased by 30,000 in September, which indicates that the labor market continues to actively recover.

As for the Euro area, the overall unemployment rate fell slightly in August. Eurostat said it decreased to 7.5%, in line with the forecasts of economists. The number of unemployed fell by 261,000 to 12.162 million, but compared to last year it fell by 1.861 million.

In France, consumer price index reportedly rose to its highest level in almost three years. It jumped to 2.1% in September, from 1.9% in August. EU-harmonized inflation also increased to 2.7% amid gains in prices for services and energy resources.

Inflation also rose in Italy for similar reasons. As such, CPI was up 2.6% y / y in September, after rising 2.0% in August. But on a monthly basis, it slipped 0.1%. Core inflation, which excludes volatile product categories, also surged to 1.1%, leaving enough room for the central bank to maneuver if needed.

Speaking of Italy, Prime Minister Mario Draghi recently said he views the current EU fiscal rules as "outdated", so he forecasts the budget deficit to surpass the ceiling in the near future. Draghi unveiled plans for the first annual budget, and it clearly shows that many officials expect to reduce the deficit to 2.1% by 2024. But until then, the Italian government plans to continue to exceed the 3% level used by the EU as a warning before the coronavirus crisis.

Going back to Germany, CPI accelerated in September to its highest level in almost 30 years. It jumped to 4.1% due to the shortage of many goods, which greatly concerned the central bank. EU-harmonized inflation was 4.1%.

This current surge of inflation in many European countries will not be overlooked by the European Central Bank, and will put more pressure on it in the December debate. After all, the members consider it when making decisions on stimulus measures such as the bond purchase program.

Earlier this week though ECB chief Christine Lagarde said the ongoing recovery and accompanying rise in inflation should not be feared yet as some factors that induced it will disappear early next year. But the recent rise in energy prices, as well as ongoing supply chain problems, will continue to weigh heavily on the overall index.

Talking about the United States, the Department of Labor reported that initial jobless claims increased for the third consecutive week, rising to 362,000. This surprised economists because they expected the figure to fall to 335,000. Nevertheless, the rate is acceptable because in the near future, the indicator will decrease again, when activity resumes.

Another important report was the GDP data for the second quarter, which grew 6.7% from the previously reported 6.6% jump. This revised growth reflects a moderate acceleration from the sharp 6.3% increase seen in the first quarter. It was the more active growth in consumer spending, a recovery in exports and an increase in investment that led to the revision of the indicator.

Sadly, the good news can not be passed on business activity as the Chicago business barometer reportedly fell to 64.7 points in September. But a value above 50 points still indicates growth, albeit not as robust as in the previous months.

With regards to EUR/USD, a lot currently depends on 1.1571 because dropping below it will result in a further decline to 1.1540 and 1.1510. But if bullish traders manage to push the pair to 1.1605, price will jump to 1.1645 and 1.1670.