Germany’s September inflation confirmed at 4.5%, USD weighed down by dovish Fed

Germany’s annual consumer price inflation was confirmed at 4.5% in September, data showed on Wednesday, decelerating sharply from 6.1% in August.

It has been the lowest inflation rate since February 2022.

Annual core CPI inflation, which does not take into account volatile items such as food and energy, decelerated to a 1-year low of 4.6% in September.

However, both indicators remained above the European Central Bank’s 2% inflation target.

Services inflation moderated to 4% in September from 5.1% in August mostly because of the base effect stemming from the discontinuation of the 9-euro ticket in 2022, the Federal Statistical Office said.

The Euro was last edging up 0.16% on the day against the US Dollar, with the EUR/USD currency pair trading at 1.0622. The major Forex pair has rebounded from a 43-week trough of 1.0448, which it registered on October 3rd.

The US Dollar was weighed down by somewhat dovish Fed remarks ahead of the release of the FOMC minutes later on Wednesday.

A host of Federal Reserve officials have recently indicated that monetary policy might not need to be tightened much further than initially expected.

Atlanta Fed President Raphael Bostic said yesterday that interest rates might not need to rise further, as policy is restrictive enough. Much of the impact of the central bank’s rate hikes so far is yet to come, Bostic noted. He also pointed out there was a lot of momentum in the economy, which could “sop up” some of the effect of tighter policy and allow the economy to slow down without entering into a recession.

Meanwhile, Minneapolis Fed President Neel Kashkari said later on Tuesday the recent rise in longer-term Treasury yields meant the Federal Reserve might not need to hike interest rates as much as otherwise.

“It’s certainly possible that higher long-term yields may do some of the work for us in terms of bringing inflation back down,” Fed’s Kashkari said. “But if those higher long-term yields are higher because their expectations about what we’re going to do has changed, then we might actually need to follow through in their expectations in order to maintain those yields.”

Up next, the minutes of the Federal Reserve’s most recent policy meeting may provide hints on future interest rate trajectory.