Germany CPI Miss at 2.6% Pressures Euro, Fuels Rate Cut Bets

EUR/USD gapped lower on the release, giving back part of its post-US CPI gains from earlier in the week. The move reflects repricing of the rate differential between the euro and the dollar. German Bund yields slid about 4 basis points on the session, reducing the carry advantage of holding euros. The pair now tests the 1.0800 support zone. A clean break below that level would open a path toward the May lows near 1.0720, provided the Dollar Index holds its ground.

EUR/GBP also reacted. Cable held relatively steady, suggesting the move is euro-specific rather than broad dollar strength. That aligns with the mechanism: softer German inflation erodes the euro's relative yield premium against the pound without a universal dollar bid.

Next Catalyst: Eurozone HICP and ECB Minutes

The German CPI is the first major input for the Eurozone-wide HICP reading due next week. If the pan-regional print matches Germany's trajectory, the ECB's policy statement after the June meeting will need to address the disinflation trend explicitly. The central bank has signalled a first cut in June is already well flagged. What changes is the pace of subsequent easing. A series of below-consensus prints would force the ECB to acknowledge that domestic demand is cooling faster than its March staff projections suggested.

Traders should also watch the April ECB minutes for clues on how hawks interpret the soft inflation data. The market will monitor Bund auction demand. Stronger bid-to-cover ratios on upcoming supply would confirm that lower yields are drawing real money buyers, not just speculative shorts.

For forex-specific exposure, the EUR/USD profile offers key levels for this week. The broader forex market analysis section covers how German data flows into ECB policy expectations. As the next European data block arrives, the euro's reaction function will tighten. A second consecutive miss on pan-eurozone inflation would push 1.0700 into play before the ECB meeting.