EUR/USD: The euro crashed despite record EU inflation, here's why?

The EUR/USD crashed to the lowest level since May 2020 even as the European inflation jumped to a record high in February. It is trading at 1.1095, which is about 10% below its highest level in 2021.

European inflation surge

Consumer prices jumped sharply in February this year as energy prices remained stubbornly high. According to Eurostat, the headline consumer inflation rose from 5.1% in January to 5.8% in February this year. This increase was better than the median estimate of 5.3%. 

The core CPI, which excludes the volatile food and energy prices rose from 2.3% in January to 2.7% in February. Also, this was higher than the median estimate of 2.5%.

Sadly, the situation will continue getting worse as the Ukrainian crisis continues. Shipping companies are reporting logistic challenges while the price of crude oil and natural gas has jumped to multi-year highs. 

In theory, the rising European inflation would be a positive thing for the EUR/USD pair because it would signal more rate hikes by the ECB. 

However, EURUSD retreated because analysts expect that the ECB will slow down when it comes to implementing its tightening process. In a note, analysts at ING said that:

“As the situation regarding Russia and Ukraine changes so rapidly at the moment and no one can predict what the actual economic impact will be, expect the ECB to refrain from big commitments around its policy for the coming year.”

The EUR/USD pair is also crashing because of the rush to safety because of the ongoing crisis. Investors believe that the US dollar is a better safe-haven than the euro.