Eurozone CPI Holds Steady, Reinforcing ECB's Wait-And-See Approach

(MENAFN- Mid-East Info) By Daniela Sabin Hathorn, senior market analyst at Capital

The preliminary July reading of Eurozone inflation showed no change in both headline and core CPI, which remained at 2.0% and 2.3% year-over-year, respectively. Markets had been expecting a slight dip in headline inflation to 1.9%, but month-on-month figures suggest price pressures continue to ease, hinting at softer inflation prints ahead if the trend persists.

Policy implications: ECB can afford to stay put:

The European Central Bank (ECB) appears to be achieving a delicate balance between supporting growth and containing inflation. With the headline CPI exactly at the ECB's 2% target, policymakers are likely comfortable with current conditions. While the risk of undershooting inflation targets cannot be dismissed entirely, the ECB's easing cycle seems to have reached a pause, with no further rate cuts expected through at least the end of 2026.

At this point, only a severe and unexpected shock to growth would likely prompt the ECB to cut further, and with most of the tariff uncertainty between the US and the EU now resolved, it is unlikely that such thing will happen anytime soon. For now, the ECB is likely to remain data-dependant, especially as it monitors how the new tariff levels impact growth in different European economies.

Market reaction:

As for markets, the CPI released hasn't done much to change the sluggish sentiment in European assets. Equity indices are facing increased selling pressure on Friday morning as global sentiment sours on the day that Trump's tariff extension deadline comes to an end, with several countries facing higher tariffs in the absence of a deal. Whilst this isn't the case for the EU, the bullish momentum that was powering equities over the past few weeks seems to have dried up somewhat, leading to a reversal in global equities.

Meanwhile, EUR/USD is attempting to find some footing after facing heavy losses this week, primarily on the back of a continued resurgence in the US dollar. Whilst other USD pairs are facing further bearish pressure on Friday, EUR/USD is holding on to the 1.14 mark for the third consecutive session, potentially finding some strength in the CPI data release. However, with the RSI nearing oversold levels and continued upside expected in the dollar, the support is unlikely to hold much longer, with the 100-day SMA at 1.1360 likely to be the next test.

EUR/USD daily chart:

Past performance is not a reliable indicator of future results.

MENAFN01082025005446012082ID1109872950