Eurozone inflation data brings some relief for the ECB but tightening cycle likely not over

European stocks are ending the week on a high, buoyed by another encouraging inflation report that will soon support the end of the ECBs tightening cycle.

Not only did the headline HICP rate fall further than expected, but the slight rebound at the core level – driven largely by unfavourable base effects, largely attributed to German transport subsidies last year – was lower than expected.

ECB policymakers will not get complacent on the back of today’s data but with inflation expected to fall further in the months ahead, core included later in the third quarter, we could well see a pause in rate hikes before the fourth quarter. This may enable the soft landing policymakers have been hoping for, with very shallow recessions a small cost to pay for price stability. ​

The unemployment rate staying at 6.5% as the number of unemployed fell slightly will keep ECB hawks on edge for signs of labour market tightness driving sustained excessive wage growth, but those fears should also subside over the coming months.

A rate hike in July looks highly likely on the back of recent ECB comments, particularly those after the meeting this month, but beyond that investors aren’t convinced thinking another is more likely than not but by no means guaranteed.

Bitcoin steady after ETF surge

Bitcoin is back in the green today but remains in the $30,000-$31,000 range it’s traded largely within over the last week. The ETF filings have given it some very positive momentum even with SEC lawsuits hanging over the industry. A break above $31,000 could see it accelerate higher once more with $32,500 potentially offering the next test.

For a look at all of today’s economic events, check out our economic calendar:

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.