Inflation has made a dramatic return in the Eurozone. In February, the headline CPI measure rose to 2.0% year-over-year, accelerating from 1.8% in January.

For the third consecutive month, this was higher than expected. Meanwhile core CPI was unchanged at 0.9%, in line with the expectations. Also unchanged was the rate of unemployment.

At 9.6%, the Eurozone (EZU, quote) unemployment rate is one of the highest across the developed regions. If it wasn’t for the high unemployment, the ECB would have surely at the very least ended its QE stimulus programme by now.

But Mario Draghi has previously indicated that the central bank will tolerate a temporary rise in inflation above the 2.0% target. But what if this is not a temporary rise? What if inflation accelerates to 3.0% in the coming months?

Whichever way you look at it, the pressure is growing on the ECB to tighten its belt. Consequently, the euro may start to outperform its weaker peers. That being said, political risk is growing ahead of the upcoming elections in Netherlands and France. This may weigh on investors’ appetite to buy euros in a meaningful way.
Content Curiosity Of Fawad Razaqzada | Technical Analyst | FOREX.com