Eurozone CPI YoY was the highlight of the day and had mixed results today. The headline CPI reading fell to 2.5% as expected, while the core CPI was unchanged. However, the Euro is not benefiting as EUR/USD continues to fall, attempting to drop below 1.07.
Headline CPI was expected to ease slightly to 2.5% in June from 2.6% in May, and that is what happened, while core CPI y/y was expected to fall to 2.8% from 2.9% previously but was left unchanged at 2.9%. Despite these adjustments, the report is not expected to have a major impact on the ECB's plans, which aim to review the data throughout the summer before making a decision on a possible rate cut in September, which has happened today.
But if inflation falls more quickly or the economy weakens significantly over the summer, markets may start to price in further rate cuts by the end of the year. Prior to the report, markets were pricing in a 46 basis point easing by the end of the year, with a 61% chance of no change at the July meeting and an 83% chance of a cut in September. These probabilities changed following the inflation report.
EUR/USD Chart H4 – Finding resistance at 200 SMA
After a sell-off following the European elections two weeks ago, the EUR/USD pair found support near the 1.0700 level. Yesterday started with a bullish gap up as right-wing parties gained power in France, dropping Macron’s coalition to third place. EUR/USD It initially rallied but encountered resistance at the 200 SMA (purple) before reversing to a decline following disappointing German CPI inflation figures, which boded well for today's Eurozone June CPI report.
Eurozone CPI Inflation Report for June
- Eurozone June CPI flash: +2.5% (expected +2.5% y/y, previous: +2.6%)
- Core CPI: +2.9% YoY (+2.9% last time vs. +2.8% expected)
- ECB's Rehn downplays report
- Headline inflation falls as expected, but core inflation remains elevated
- Services inflation remains high at 4.1%
The euro area's flash CPI came in at +2.5% y/y for June, in line with expectations but down slightly from +2.6% the previous month. Meanwhile, core CPI was reported at +2.9% y/y, slightly above the +2.8% expected and unchanged from May. ECB's Philip Lane previously tried to downplay the significance of the report, but its details are not particularly encouraging for the central bank. Headline inflation fell as expected, but core inflation remains elevated, driven largely by services inflation which remains elevated at 4.1%.
EUR/USD Live Chart
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