Preliminary inflation data for the Eurozone will be released on Tuesday morning, attracting the attention of many market participants. According to existing information, the Eurozone's Harmonized Index of Consumer Prices (HICP) is expected to rise by 2.0% year-on-year in August this year. Meanwhile, core inflation expectations have slightly decreased to 2.2%, down from 2.3% last month.

In terms of the impact on the Euro/US Dollar, although this currency pair has performed steadily recently, if the inflation data exceeds expectations, it may push it to rise to its highest point of 1.1830 since September 2021. However, if inflation is lower than expected, it may put pressure on the Euro/US Dollar, causing it to test short-term moving averages around 1.1680, or even drop further towards the 50-day moving average.

Understanding inflation is crucial. Simply put, it measures the rise in prices of a basket of goods and services, often expressed as a percentage on a month-over-month or year-over-year basis. Core inflation excludes volatile items like food and fuel, making it a more closely watched indicator by economists and central banks, typically aimed at being around 2% to keep inflation manageable.

In addition, regarding the consumer price index (CPI), it is also an important indicator for observing price changes. Core CPI similarly excludes those volatile factors, providing a reference for central banks in setting interest rate decisions. Generally speaking, a CPI above 2% may indicate an interest rate hike, while below 2% may lead to a rate cut.

Inflation also affects the foreign exchange market. High inflation usually raises the value of a currency, as central banks may increase interest rates to counteract inflation, attracting more capital inflow. On the other hand, low inflation may lead to a depreciation of the currency.

The gold market is also closely linked to inflation. In the past, gold was the preferred choice for investors to cope with high inflation because it retains value. However, when interest rates rise, it increases the opportunity cost of holding gold, reducing its appeal during those times. Conversely, when inflation decreases, lower interest rates typically make gold more attractive to investors.

This article aims to provide information and does not constitute investment advice. Past market performance is not indicative of future results. What are your thoughts on this data? Feel free to leave a comment and share your views!