Inflation eased significantly in Germany in March on the back of lower energy prices but was above forecasts, adding pressure on the European Central Bank to further tighten its monetary policy.
Separately, data showed that Spain’s consumer prices rose 3.3% year-on-year in March, the slowest pace since the 12-month period through August 2021 and less than expected by analysts.
The European Central Bank, which has made it clear future rate hikes will depend on economic data, has increased its key deposit rate by 350 basis points to 3% since July as it seeks to tame surging inflation.
“There is a divergence developing between the ECB and the Fed that is going to weigh on the dollar,” Bipan Rai, North America head of FX strategy at CIBC Capital Markets in Toronto, said.
“(European inflation data) suggests there is more work for the ECB to do and that could close the policy rate gap between the ECB and the Fed going forward,” he said.
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