Data due next week includes Eurozone inflation data. Analysts at Wells Fargo expect data to show price growth slowed in November but is still elevated. They see the European Central Bank tightening monetary policy through the end of 2022 and EUR/USD slipping back below parity.
“Europe has seen persistent inflationary pressures, and next week, we expect those pressures to still be reflected in November CPI data. To that point, headline inflation is currently 10.7% year-over-year; however, we expect November data to show price growth slowed over the course of the month, but remains elevated. While energy prices have come down and supply chain disruptions have eased, natural gas supply disruptions have kept inflation well above the European Central Bank’s (ECB) target range.”
“Policymakers have communicated interest rates are likely to rise in the near future, and while we believe additional tightening is likely, the ECB is unlikely to deliver the amount of tightening priced by financial markets. In that sense, we expect the euro to slip back below parity as markets adjust to a more gradual pace of tightening.”
“Eurozone inflation is likely to remain above the ECB’s target for all of 2023, only starting to head on a downward trajectory in a few months’ time.”
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