EUR: Encouraging 2Q Growth Data Amidst Softening Inflation and Dollar Resilience

EUR: Should we expect a growth surprise in 2Q

Comments over the weekend from ECB President Christine Lagarde that 2Q GDP releases so far have been encouraging suggest that the ECB may not be ready to abandon seemingly over-optimistic growth forecasts. Today we will have the first look at 2Q23 eurozone GDP growth data - expected at 0.2% quarter-on-quarter. A little later, flash July CPI will be released and is expected to show some further slowing in both the headline and core readings. Expectations for the ECB deposit rate at year-end have dipped from 3.95% to around 3.83% now.

We are a little disappointed that EUR/USD did not hold gains on Friday's soft US Employment Cost Index reading. As above, that may suggest US disinflation is not enough to get the dollar lower. Unless we see some downside surprises to the US activity data this week it looks as though EUR/USD can be dragged back towards the 1.0920 area.