FX.co ★ Euro Weakens on Cooling Inflation

The euro has fallen slightly below $1.17, reaching its lowest point since December 9, due to weaker inflation figures in the Eurozone, which have dampened predictions of a European Central Bank (ECB) interest rate increase by year-end. According to EUROSTAT, consumer price inflation in December eased to a four-month low of 2%, aligning back with the ECB's target. Core inflation, excluding items such as energy, food, alcohol, and tobacco, decreased to 2.3%, which was slightly below the anticipated 2.4%. In the region's major economies, price growth either moderated or remained relatively stable. In other developments, Germany saw a 0.6% decline in retail sales for November, the largest drop since May and contrary to expectations of a 0.2% increase. Further dampening sentiments, Germany's labor market exhibited minimal progress as the year commenced. Consequently, financial markets currently attribute almost no likelihood to an ECB rate hike by December 2026, reinforcing the belief that interest rates will likely be maintained at current levels for the foreseeable future.