• Headline CPI as expected, core indicator a tad below forecast
• Market dents probability of a 50bps rate cut in December
• Euro gains a few pips against the dollar

Despite expectations for a small downside surprise, the eurozone’s preliminary headline CPI printed in line with forecasts, showing a 2.3% year-on-year increase in November, up from 2% in October. The core inflation indicator, which remains the key inflation figure for the ECB, remained stable at 2.7%, a tad below expectations for a small acceleration to 2.8%.

Economic data in November has been relatively weak in the euro area, and today’s figures confirm this trend. Therefore, the lack of a significant upside surprise means that the ECB will most likely announce another rate cut on December 12. The size of the cut is uncertain, but the doves continue to push for 50bps decrease due to both the weak economic sentiment in the euro area and President-elect Trump’s second term.

While the market is fully pricing in a 25bps rate cut, today’s CPI report has slightly dented the probability assigned to a 50bps rate cut, pushing it from 20% before the CPI release to 15% at the time of writing.

Euro/dollar climbed a few pips on the back of the CPI report, maintaining the euro bulls’ weekly gains of 1.5%. However, next week’s performance will depend on the busy US data calendar, which includes next Friday’s labour market data.