EUR

The euro had a mixed day on Tuesday remaining relatively range-bound as data showed European inflation had risen to its highest level since the single currency was created in 1999.

According to the data released by the Eurostat, European inflation for May year-on-year surged to 8.1% in May, up from 7.5% in April surpassing expectations of 7.7%. The month on month figure understandably also grew to 3.8% surpassing expectations. Rising prices have been exacerbated over recent months following the war in Ukraine, with food and energy costs rising.

The lack of market movement following the release may be a result of markets largely pricing in a strong reading as both German and French inflation surpassed expectations earlier in the week.

The euro was relatively muted following the release, which suggests markets were largely expecting a strong reading as both German and French inflation surpassed expectations earlier in the week.

This inflation release for the European area has upped the ante on the upcoming European Central Bank policy meetings of which markets are currently pricing in the ECB hiking rates for the first time in over a decade. Currently, markets are pricing gradual rate hikes for July and September but European policymakers seem to be at odds with the size of the hike.

For instance, Slovakia’s central bank Governor Peter Kazimir has stated that his “baseline is for 25 basis points in July, but remains open to discuss 50 basis points”. This echoes recent rhetoric from Dutch, Latvian and Austrian governors that 50 basis points should be discussed at the July meeting. Whilst the governors for Spain and Italy struck a more dovish tone, stating that rates should be increased “gradually” due to the uncertain economic outlook.

Economic calendar

07:00 – EUR (Ger) – Retail Sales (YoY) (Apr) -0.4% against 4% expectations
12:00 – EUR – ECB President Lagarde
15:00 – USD – ISM Manufacturing PMI (May) expectations 54.5