Euro falls as EU inflation rate drops to lowest level since 2014

Euro falls as EU inflation rate drops to lowest level since 2014
Written by:
Crispus Nyaga
31st March, 09:48
  • The euro index declined by more than 40 basis points as the number of Coronavirus cases started to fall
  • The rate of inflation in Europe dropped to the lowest level since 2014 according to Eurostat
  • Technical analysis shows that the euro could continue declining against the dollar

The euro declined amid some positive Coronavirus news from the European Union. In a report yesterday, the World Health Organization (WHO) said that the Coronavirus outbreak in the region was peaking.

The announcement came as the number of new infections in key countries like Italy and Spain started to decline. Indeed, as shown below, the number of new cases in Italy has declined while the number of recoveries has surged. Still, the current lockdown in most countries will continue for the next few weeks as countries try to contain the spread of the disease.

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Italy Coronavirus cases decline

Europe has been among the most affected places in the world. For example, Italy has lost more than 17,000 people while Spain has lost more than 7,000 people. This has also been reflected in the overall economy, where many companies have either announced layoffs or reduced the number of hours for their employees. Some of the most prominent companies that have done this are Adidas, Volkswagen, and Daimler.

Further, the number of bankruptcies in the region is expected to increase. In the United Kingdom, two prominent retailers, BrightHouse and Carluccio’s filed for bankruptcy yesterday. Some of the companies most at risk are airlines, restaurants, and retailers. Just yesterday, budget carrier, easyJet grounded its entire fleet as Loganair sought for bailout.

EU inflation falls

Meanwhile, preliminary data showed that inflation in the European Union fell in March. According to Eurostat, annual inflation in the region declined to 0.7%, down from 1.2% in the previous month. This was the biggest decline since 2014. The biggest contributors to inflation were food, alcohol, and tobacco, which increased by 2.4%. Perhaps, this happened as more people rushed to stockpile ahead of Coronavirus lockdowns.

The price of services rose by 1.3%, which was lower than the previous month’s 1.6%. As widely expected, the biggest laggard to inflation was energy, which declined by 4.3%. This was attributed to a sharp decline in oil prices, which have fallen by more than 50% in the past few weeks.

The core CPI, which removes the volatile food and energy products rose by an annual rate of 1.0%, which was slightly lower than February’s rate of 1.2%.

Data from the French statistics office showed that the country’s inflation fell in March. The headline annualized CPI data declined from the previous 1.4% to 0.6%. The number was unchanged on a month-over-month basis. The harmonized consumer inflation number declined from the previous 1.6% to 0.6%.

Euro outlook

EUR/USD technical analysis

The euro index, which measures the performance of the euro against a basket of peer currencies declined by more than 40 basis points. The currency declined by more than 0.65% against the dollar and by 0.10% against the British pound.

As shown above, the currency has been declining against the dollar after it tested a high of 1.1150 on Thursday last week. The 14-day and 28-day EMA have made a bearish crossover and the RSI is falling. This implies that the pair could decline further to test the 50% Fibonacci Retracement level of 1.0900.

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