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- Eurostat is due to release key European inflation data on Tuesday.
- Headline inflation is expected to ease in June.
- There is widespread uncertainty about future interest rate cuts by the ECB.
The main indicator of inflation across the euro area, the Harmonized Consumer Price Index (HICP), is due to be released on Tuesday, July 2. The European Central Bank (ECB) will be scrutinizing the data closely amid ongoing uncertainty about the continuation of the monetary easing cycle that began with the June 6 event.
From December 2023 onwards, the Eurozone Consumer Price Index (CPI) will decline gradually, except for a brief dip in May 2024.
At its most recent meeting, the European Central Bank (ECB) cut interest rates by 25 basis points for the first time since 2019 and revised upward its forecasts for economic growth and inflation, predicting that inflation will recover to its 2% target slower than previously expected. As a result, inflation is now expected to reach 2.2% next year, up from the previous forecast of 2.0%, and the target is now expected to be reached by 2026. This suggests that achieving the “final step” to the target may be more difficult than initially expected.
At the meeting, European Central Bank (ECB) President Christine Lagarde acknowledged the bank's progress in fighting high inflation, but also suggested the fight was not over yet, with inflation expected to remain high into next year.
What can we expect in the next European inflation report?
Reflecting similar inflation trends in other G10 countries, economists generally expect HICP headline inflation for the trailing 12 months to June to be 2.5%, down slightly from 2.6% in May. The core measure, which excludes food and energy costs, is expected to rise 2.8% year-on-year, following a 2.9% increase in the previous month.
Germany's preliminary June consumer price index (CPI) rose 2.2% year-on-year, down from 2.4% in the previous month, providing some support for expectations of falling consumer prices.
Returning to the ECB, the bank released its May Consumer Expectations Survey on June 28, revealing that consumers in the region are lowering their inflation expectations. Inflation expectations for the next 12 months fell to 2.8% from 2.9% in April. Similarly, inflation expectations three years ahead also fell to 2.3% from 2.4%, but still remain above the bank's 2% target.
When will the HICP report be released and how might it impact EUR/USD?
The eurozone's interim HICP is scheduled to be released at 9:00 am GMT on Tuesday, July 2. As this highly anticipated inflation data approaches, the euro (EUR) has struggled to convincingly break out of recent lows near 1.0660 against the US dollar (USD), with investors still viewing divergence in Fed and ECB policy and hawkish comments from the majority of Fed officials as the only factor behind EUR/USD's decline since surpassing its June peak of 1.0900.
Pablo Piovano, senior analyst at FXStreet, noted: “If bullish sentiment sets in, EUR/USD is expected to face initial resistance at the key 200-day SMA at 1.0790. A sustained move above this area could extend the bull market to the June high of 1.0916 (June 4) before reaching the March high of 1.0981 (March 8).”
Pablo added: “On the other hand, if selling pressure intensifies, spot prices could retest the June low of 1.0666 (June 26th) ahead of the May low of 1.0649 (May 1st). If the decline deepens further, the 2024 bottom of 1.0601 (April 16th) could be revisited.”
Economic indicators
Consumer Price Index (year-on-year change)
The Harmonized Consumer Price Index (HICP) measures the change in prices of representative goods and services in the European Monetary Union. Published monthly by Eurostat, the HICP is harmonized as all member states use the same methodology and their contributions are weighted. Year-over-year values compare the price of the reference month with one year ago. Generally, higher values are considered bullish for the Euro (EUR) and lower values are considered bearish.
read more.
Next release: Tuesday, July 2, 2024 09:00 (advance)
frequency: Monthly
consensus: 2.5%
previous: 2.6%
sauce: Eurostat
ECB FAQs
The European Central Bank (ECB), located in Frankfurt, Germany, is the reserve bank for the eurozone. The ECB sets interest rates and manages monetary policy for the eurozone. The ECB's main mission is to maintain price stability, which means keeping inflation at around 2%. Its main means of achieving this is by raising or lowering interest rates. Relatively higher interest rates usually lead to a stronger euro and vice versa. The ECB Governing Council decides on monetary policy at its eight meetings per year. Decisions are made by the heads of the eurozone national banks and the six permanent members, including ECB President Christine Lagarde.
In extreme circumstances, the European Central Bank can implement a policy tool called quantitative easing. Quantitative easing is the process in which the ECB prints euros and uses them to buy assets (usually government or corporate bonds) from banks and other financial institutions. Quantitative easing usually results in a weaker euro. Quantitative easing is a last resort when simply lowering interest rates may not be able to achieve the objective of price stability. The ECB used quantitative easing during the great financial crisis of 2009-2011, in 2015 when inflation remained stubbornly low, and during the coronavirus pandemic.
Quantitative tightening (QT) is the opposite of QE. It is implemented after QE when the economic recovery is underway and inflation starts to rise. In QE, the European Central Bank (ECB) provides liquidity by purchasing government and corporate bonds from financial institutions, but in QT, the ECB stops buying bonds and stops reinvesting the principal of maturing bonds it already holds. This is usually positive (or bullish) for the euro.
- Eurostat is due to release key European inflation data on Tuesday.
- Headline inflation is expected to ease in June.
- There is widespread uncertainty about future interest rate cuts by the ECB.
The main indicator of inflation across the euro area, the Harmonized Consumer Price Index (HICP), is due to be released on Tuesday, July 2. The European Central Bank (ECB) will be scrutinizing the data closely amid ongoing uncertainty about the continuation of the monetary easing cycle that began with the June 6 event.
From December 2023 onwards, the Eurozone Consumer Price Index (CPI) will decline gradually, except for a brief dip in May 2024.
At its most recent meeting, the European Central Bank (ECB) cut interest rates by 25 basis points for the first time since 2019 and revised upward its forecasts for economic growth and inflation, predicting that inflation will recover to its 2% target slower than previously expected. As a result, inflation is now expected to reach 2.2% next year, up from the previous forecast of 2.0%, and the target is now expected to be reached by 2026. This suggests that achieving the “final step” to the target may be more difficult than initially expected.
At the meeting, European Central Bank (ECB) President Christine Lagarde acknowledged the bank's progress in fighting high inflation, but also suggested the fight was not over yet, with inflation expected to remain high into next year.
What can we expect in the next European inflation report?
Reflecting similar inflation trends in other G10 countries, economists generally expect HICP headline inflation for the trailing 12 months to June to be 2.5%, down slightly from 2.6% in May. The core measure, which excludes food and energy costs, is expected to rise 2.8% year-on-year, following a 2.9% increase in the previous month.
Germany's preliminary June consumer price index (CPI) rose 2.2% year-on-year, down from 2.4% in the previous month, providing some support for expectations of falling consumer prices.
Returning to the ECB, the bank released its May Consumer Expectations Survey on June 28, revealing that consumers in the region are lowering their inflation expectations. Inflation expectations for the next 12 months fell to 2.8% from 2.9% in April. Similarly, inflation expectations three years ahead also fell to 2.3% from 2.4%, but still remain above the bank's 2% target.
When will the HICP report be released and how might it impact EUR/USD?
The eurozone's interim HICP is scheduled to be released at 9:00 am GMT on Tuesday, July 2. As this highly anticipated inflation data approaches, the euro (EUR) has struggled to convincingly break out of recent lows near 1.0660 against the US dollar (USD), with investors still viewing divergence in Fed and ECB policy and hawkish comments from the majority of Fed officials as the only factor behind EUR/USD's decline since surpassing its June peak of 1.0900.
Pablo Piovano, senior analyst at FXStreet, noted: “If bullish sentiment sets in, EUR/USD is expected to face initial resistance at the key 200-day SMA at 1.0790. A sustained move above this area could extend the bull market to the June high of 1.0916 (June 4) before reaching the March high of 1.0981 (March 8).”
Pablo added: “On the other hand, if selling pressure intensifies, spot prices could retest the June low of 1.0666 (June 26th) ahead of the May low of 1.0649 (May 1st). If the decline deepens further, the 2024 bottom of 1.0601 (April 16th) could be revisited.”
Economic indicators
Consumer Price Index (year-on-year change)
The Harmonized Consumer Price Index (HICP) measures the change in prices of representative goods and services in the European Monetary Union. Published monthly by Eurostat, the HICP is harmonized as all member states use the same methodology and their contributions are weighted. Year-over-year values compare the price of the reference month with one year ago. Generally, higher values are considered bullish for the Euro (EUR) and lower values are considered bearish.
read more.
Next release: Tuesday, July 2, 2024 09:00 (advance)
frequency: Monthly
consensus: 2.5%
previous: 2.6%
sauce: Eurostat
ECB FAQs
The European Central Bank (ECB), located in Frankfurt, Germany, is the reserve bank for the eurozone. The ECB sets interest rates and manages monetary policy for the eurozone. The ECB's main mission is to maintain price stability, which means keeping inflation at around 2%. Its main means of achieving this is by raising or lowering interest rates. Relatively higher interest rates usually lead to a stronger euro and vice versa. The ECB Governing Council decides on monetary policy at its eight meetings per year. Decisions are made by the heads of the eurozone national banks and the six permanent members, including ECB President Christine Lagarde.
In extreme circumstances, the European Central Bank can implement a policy tool called quantitative easing. Quantitative easing is the process in which the ECB prints euros and uses them to buy assets (usually government or corporate bonds) from banks and other financial institutions. Quantitative easing usually results in a weaker euro. Quantitative easing is a last resort when simply lowering interest rates may not be able to achieve the objective of price stability. The ECB used quantitative easing during the great financial crisis of 2009-2011, in 2015 when inflation remained stubbornly low, and during the coronavirus pandemic.
Quantitative tightening (QT) is the opposite of QE. It is implemented after QE when the economic recovery is underway and inflation starts to rise. In QE, the European Central Bank (ECB) provides liquidity by purchasing government and corporate bonds from financial institutions, but in QT, the ECB stops buying bonds and stops reinvesting the principal of maturing bonds it already holds. This is usually positive (or bullish) for the euro.
