• The annual HICP in Germany unexpectedly fell in January.
• EUR/USD reverses from daily highs but holds gains above 1.0700.

Inflation in Germany, as measured by the Harmonised Index of Consumer Prices (HICP), dropped to 9.2% on a yearly basis in January from 9.6% in December, the latest data from the German statistical office, Destatis, showed on Thursday. This reading came in lower than the market expectation of 10.0%.

On a monthly basis, the HICP climbed 0.5% in the first month of the year vs. 1.4% expected and -1.2% prior.

It’s worth noting that the HICP is the European Central Bank's (ECB) preferred gauge of inflation.

Meanwhile, the annualized Consumer Price Index (CPI) increased to 8.7% in January vs. 8.9% expected and 8.6% reported in December. Germany’s CPI came in at 1.0% MoM in the reported month when compared to the -0.8% previous reading and the estimates of 0.9%.

Market reaction

The Euro came under mild bearish pressure on the surprise drop in the German headline inflation, with EUR/USD paring gains from daily highs of 1.0745 to currently trade at 1.0732.