Euro stable, as Germany slips into deflation for first time since 2009

On Thursday the common currency held steady against the dollar despite preliminary data showing that Germany fell into deflation for the first time since July 2009 this month. 

EUR/USD was last at 1.1316, up slightly from around 1.1296 ahead of the data.

The annual rate of consumer inflation fell 0.3% in January, slowing from 0.2% in December and worse than forecasts for a decline of 0.2%, Germany’s statistics bureau reported. Consumer prices in the largest economy of Europe were down 1% from a month earlier, compared to expectations for a 0.8% drop after a flat reading last month.

The data came one week after the European Central Bank unveiled a 60 billion a month government bond purchasing program in a bid to spur slowing growth and inflation in the region.

Earlier in the day, official figures showed that Germany’s unemployment rate hit a new record low of 6.5% this month, highlighting the diverging economic recoveries across the euro zone.

Continuous concerns over the situation in Greece also pressured the sentiment over the euro.

The country’s new government moved Wednesday to roll back deeply unpopular austerity policies underpinning the county’s 240 billion international bailout program, fuelling fears over a clash with its lenders.

Late Wednesday, ratings agency Standard & Poor’s reduced Greece’s credit rating estimate to negative.

Demand for the dollar continued to be underpinned after the Federal Reserve indicated that interest rates could start to rise around mid-year.

Following its policy meeting on Wednesday, the Fed said it would keep rates on hold at least until June and reiterated its pledge to be patient on raising interest rates, while acknowledging the solid economic recovery and strong growth in the labor market.

The central bank also said it expected inflation to keep declining in the short term and added that it would take "financial and international developments" into account before deciding when to hike borrowing costs.

In other trade, EUR/JPY was last at 133.44, up 0.56% on the day, with EUR/GBP was at 0.7478.