European session review: EUR mostly higher despite disappointing Eurozone's CPI report for August

EUR traded mostly higher against its major rivals in the European session on Tuesday after the release of lower-than-expected Eurozone’s CPI data for August.

Eurostat reported its flash estimates showed that Eurozone’s inflation turned negative in August. According to the report, Eurozone’s consumer prices are expected to fall 0.2 percent y/y from a year earlier in August,  reversing a 0.4 percent y/y increase in July. This will be the first decline since May 2016. Economists had forecast the prices to climb 0.2 percent y/y. Meanwhile, excluding energy, food, alcohol and tobacco, core inflation, at which the ECB looks in its policy decisions, is likely to ease to 0.4 percent from 1.2 percent in July. This represents a record low core inflation rate. Economists had expected a 0.8 percent gain.

The European Central Bank (ECB) aims to keep inflation "below, but close to 2 percent." However, the ECB’s policymakers acknowledged that inflation pressures are expected to remain more subdued this year.  So, market participants do not expect the ECB to respond imminently to the latest CPI data when they meet next week, but they are curious how much lower a decline in inflation and for how long can the ECB’s officials tolerate.