European session review: EUR edges lower ahead of this week’s Eurozone growth, inflation data

EUR slipped against most of its major counterparts in the European session on Tuesday as investors anticipated several crucial economic releases in the Eurozone later in the week, which could provide additional insight into the state of the region’s economy and impact the European Central Bank’s December rate decision. 

Particular attention will be paid to the preliminary estimates of the euro area’s GDP growth in the third quarter due on Wednesday and the region’s flash inflation data for October due on Thursday.

Economists expect Wednesday’s release will show a modest expansion of 0.2% QoQ in the Eurozone’s economy in the latest quarter, as Germany - the region’s largest economy - has likely experienced a shallow contraction for the second quarter in the row, entering a technical recession. On a YoY basis, however, the euro area’s GDP is forecast to show an increase of 0.8%, the strongest since the first quarter of 2023 (+1.3% YoY).

Regarding inflation, the Eurozone’s headline consumer price index (CPI) is seen to show a rise of 1.9% YoY in October, up from 1.7% YoY in the previous month, and the core measure is predicted to show a gain of  2.6% YoY, slightly down from 2.7% YoY in September.

Such outcomes would be consonant with the markets’ thinking that the ECB would continue to lower its interest rates over the months ahead to support the economy. If the third-quarter GDP figures come in below expectations, this could prompt markets to increase their bets on a hefty 50-basis-point rate cut by the ECB in December. Meanwhile, the hotter-than-anticipated inflation report would add to arguments for a less aggressive rate reduction at the ECB’s final meeting of 2024.