Rise in German CPI Drives EUR/USD to Highest Level Since Mid-February

The EUR/USD rallied on Wednesday after a report showed German consumer prices (CPI) rose 0.8% in March. Traders were looking for an increase of 0.6%. The annual rate moved into positive territory at 0.3% from 0.00% previously.  The data will reinforce Bundesbank opposition to further monetary policy easing and lessen the chances of further European Central Bank action.

Recently weak German preliminary data was an important factor driving Eurozone inflation down to 0.2% in March. It also fueled deflation concerns ahead of March’s ECB policy meeting. The weak data also contributed to pressure for aggressive policy action at that meeting as the bank delivered a further cut in the discount rate and expansion of the bond-buying program.

Today’s stronger than expected German data should have the opposite effect this month with expectations surrounding Euro Zone inflation data on Thursday likely to tick higher with a greater possibility that the Euro Zone as a whole will escape from negative inflation.

Higher inflation would also be very significant in curbing expectations of further ECB policy action and inflation hawks with the German Bundesbank are certainly likely to take a tougher stance.

Both the Euro and the British Pound continued to be underpinned by Fed Chair Janet Yellen’s dovish speech on Tuesday. This news was strong enough to overcome concerns over Brexit that had put pressure on the GBP/USD recently.

The ADP National Employment Report showed U.S. private employers added 200,000 jobs in March, above economists’ expectations. The data came ahead of the U.S. Labor Department’s more comprehensive March non-farm jobs report on Friday.

While the ADP data beat economists’ forecast for 194,000 jobs, the data was not strong enough to reverse the intraday downtrend by the U.S. Dollar.

June Comex Gold futures traded sideways to lower on Wednesday as savvy investors cashed in their long positions after yesterday’s steep counter-trend rally. Although the U.S. Dollar traded lower, the move did not fuel a rally in gold. Investors instead threw more money into the higher-yielding stock market. Gold could continue to lose ground over the near-term if stocks continue to grind higher.

May Crude Oil edged higher on Wednesday, driven by higher equity prices and a weaker dollar. Gains were pared after a U.S. government report showed a smaller build in crude oil than expected.

According to the U.S. Energy Information Administration, U.S. commercial crude stockpiles increased by 2.3 million barrels in the week-ended March 24. Traders were looking for a 3.3 million barrel build. Stockpiles also reached another record high of 534.8 million barrels.

Gasoline inventories decreased by 2.5 million barrels, and preliminary data showed domestic crude production continue to tick down.