-Jasper Lawler, market analyst for CMC Markets
German inflation accounts for the major part of the overall European inflation, hence, it has a significant impact on markets and can affect EU CPI figures that are released a day later. Keeping in mind that Monday's report from Destatis disappointed markets, the most traded currency has a great potential to move and finally close below the major level of 1.36.
The cost of living, calculating using a harmonized method, in Europe's largest economy rose only 0.6% in May, decelerating from 1.1% a month earlier. This was the lowest level since February 2010, and below analysts' expectations for a 1.0% gain. At the same time, the broader CPI measure plunged 0.1% on a monthly basis and rose just 0.9% at annualized pace in May, posting a significant slowdown on a yearly basis. Weak inflationary pressure in the 18-nation's bloc and in German economy in particular shows how European policymakers are struggling to counter risks to the economy posed by inflation in the "danger" zone. The central bank is preparing a set of measures for the June 5 Governing Council meeting that can include a revision of all three main rates.
Experts from the National Australia Bank believe Mario Draghi will cut interest rates and will extend the terms of central bank's long-term repurchases programmes in order to make funds available for domestic banks.
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