Written by Daniela Sabin Hathorn, senior market analyst at Capital.com
Inflation in the Eurozone remained stubbornly high in April, with both headline and core CPI figures exceeding market expectations. Headline inflation held steady at 2.2%, above the anticipated 2.1%, while core inflation—which strips out volatile food and energy prices—climbed to 2.7%, up from 2.4% the previous month.
This marks the sixth straight month that inflation has stayed above the European Central Bank’s (ECB) 2% target, despite having fallen to 1.7% as recently as September. The euro slipped slightly against the U.S. dollar following the release, though the reaction remained relatively contained.
EUR/USD 1-minute chart
Past performance is not a reliable indicator of future results.
Last month, the ECB unanimously voted to cut interest rates by 25 basis points in anticipation of growth headwinds linked to President Trump’s aggressive tariff stance. At the time, ECB President Christine Lagarde reassured markets that most measures of underlying inflation were moving in the right direction, supporting confidence in the ECB’s long-term policy trajectory. However, April’s hotter-than-expected inflation data may cast doubt on that narrative, potentially complicating the ECB’s forward guidance. Market pricing currently implies an 86% probability of another 25 basis point cut in June. Still, today’s data could prompt investors to reassess the pace and depth of further easing.
The euro initially attempted a rebound on Friday morning, following a short-term pullback due to dollar strength earlier in the week. While EUR/USD retreated from its intraday high after the CPI data release, the overall trend remains constructive.
Until now, the ECB’s early move to cut rates had been viewed as a savvy and proactive step, setting the Eurozone apart from other major economies and drawing capital flows into European assets. However, persistent inflation may now challenge that narrative. While today’s data doesn’t fully derail confidence in the ECB’s approach, it may begin to erode some of the recent risk appetite tied to European investments
EUR/USD daily chart
Past performance is not a reliable indicator of future results.
