EUR: Core inflation concerns persist as ECB awaits July hike

EUR: Core inflation issues continue for the ECB

The decrease in headline inflation in June was likely insufficient for the European Central Bank given the tick-up in core prices (from 5.3% to 5.4% for the whole euro area). With President Christine Lagarde having pre-committed to a July hike, the discussion is currently around a move in September. Markets are fully pricing in two final hikes, but not by September. Either way, the stickiness in core inflation will give the ECB hawks a chance to reinforce their message.

With ECB members having had the opportunity to clarify their rhetoric at the Sintra symposium last week, this week’s speakers may not have a very strong impact on the euro, even though markets will be interested in comments following the inflation report for June.

It seems likely that the USD leg will drive most of the EUR/USD moves this week, especially once US data starts to come in. There is some room for the pair to decline modestly on the back of some dollar strength, although a big drop below 1.0800 may be premature.