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European Session – Euro above 1.38 despite soft EZ inflation, dismal US GDP weakens dollar

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The euro strengthened across the board despite below forecast Eurozone CPI numbers. The preliminary reading on headline inflation rose to 0.7% year-on-year versus 0.8% expected but above a previous 0.5%.

Despite the softer number, it is unlikely that the European Central Bank will take action at its policy meeting next week. This view is expected to keep the euro supported until then. Meanwhile, Tuesday’s below-forecast German CPI prepared markets for today’s overall softer Eurozone CPI.

There were other mixed data from the Eurozone today, such as German retail sales which were worse-than-expected but stronger Spanish Q1 growth figures attracted more attention as the country recorded the best expansion since Q4 2007. This was important since Spain was one of the worst hit countries during the height of the Eurozone crisis.

The euro was up 0.41% to trade at 1.3859.

In other currencies, sterling was also up due to the broadly weaker dollar, gaining 0.23% to 1.6847.

The other major data released today was the US GDP which was very disappointing. The US economy almost stalled in the first quarter, recording a mere 0.1% growth rate compared to 2.6% in the final quarter of 2013.

The dollar dropped across the board after the data, losing 0.7% versus the yen to trade at 102.29.

The GDP data comes ahead of the Federal Reserve policy statement later today. The Fed is expected to trim another $10 billion-a-month from its bond-buying programme, from $55 billion to $45 billion.

The FOMC announcement will be closely watched for what the Fed has to say on the assessment of the US economy and whether is sees signs of improvement after the winter slump.