EUR/USD Hits Reverse in Response to ECB Consumer Expectations Survey

It was a quiet day for the EUR/USD on the economic calendar. A lack of economic indicators from the Eurozone left publications from the ECB in focus this morning.

The ECB’s focal point remained inflation ahead of tomorrow’s Economic Bulletin. Two key publications included the ECB’s Consumer Expectations Survey results and a pre-release of the Economic Bulletin, focusing on the Consumer Expectations Survey.

According to the September Survey,

• Consumer expectations for inflation one year ahead increased while remaining unchanged for three years.
• Alarmingly, expectations for income growth over the next year tumbled while expectations for nominal spending growth remained unchanged.
• Sentiment toward economic growth also deteriorated, while unemployment expectations rose.

Perceived inflation over the previous 12 months increased to 8.1%, while inflation expectations over the next 12 months rose to 5.1%. Notably, inflation uncertainty about the next 12 months eased but remained well above pre-Ukraine war levels.

While consumers expect inflation to inch higher (5.0% to 5.1%), consumers expect their nominal income to rise by 0.6%, down from 1.0% in August.

Consumer sentiment toward the economic outlook and unemployment also disappointed. Compared with August, consumer economic growth expectations for the next 12 months fell from -1.7% to -2.4%, with consumers expecting the unemployment rate to rise from 11.9% to 12.2%.

The ECB Calls for the Close Monitoring of Consumer Expectations

In response to the survey, the ECB released a pre-Economic Bulletin publication focusing on the results of the Consumer Expectations Survey.

Salient points from the publication included,

• Consumers in the euro area continue to see that the current spike in perceived inflation has a significant transitory component and anticipate inflation to return closer to the levels seen in the past over the medium term.
• There is a high level of longer-term inflation sensitivity to changes in current inflation. As a result, shocks to current inflation could move expectations far away from the ECB’s target.
• Inflation uncertainty was high at the start of the pandemic and lockdown before easing back. However, uncertainty increased again from July 2021 and further due to the Ukraine war and remains elevated.

The ECB noted that,

“The upward movement in expectations, the increase in uncertainty surrounding them, and the increased sensitivity of medium-term expectations to perceived current inflation all call for continued close monitoring and analysis of consumers’ inflation expectations.”

EUR Responds to the Consumer Expectations Survey

The EUR/USD fell from $1.00709 to a post-survey low of $1.00538 in response to the survey.

The latest survey followed comments from ECB President Lagarde on Monday, who reiterated that inflation was too high and that rates would rise to combat inflation and bring it to target.

At the time of writing, the EUR/USD was down 0.14% to $1.00588.