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The EURUSD pair continued to advance higher during the European session after ECB member Nagel stated that “We may need to keep raising rates after the summer break.”
This was another hint that the ECB may even hike in September. These comments and EU inflation figures this morning keep the euro on course for a test of 1.1000.
Data this morning revealed that The consumer price inflation in the Euro Area was confirmed at 6.1 percent in May 2023, the lowest since February 2022.
The rate remained significantly higher than the European Central Bank’s target of 2.0 percent. Energy prices declined 1.8 percent, after a 2.3 percent increase in April.
Additionally, there was a slowdown in cost pressures for food, alcohol, and tobacco (12.5 percent vs 13.5 percent), non-energy industrial goods (5.8 percent vs 6.2 percent), and services (5.0 percent vs 5.2 percent).
Furthermore, the core inflation rate, which excludes energy, food, alcohol, and tobacco, eased to 5.3 percent in May, the lowest since January.
Median consumer expectations for the Euro Area inflation over the next 12 months fell to 4.1% in April of 2023, the lowest since February last year, from 5% in March. Expectations also decreased for the three years ahead, to 2.5% from 2.9%.
ECB’s Holzmann was also out on the wires as he noted that “If things continue as they are, further action will be needed beyond July/ Has no view on what should happen with rates beyond July.”
Holzmann also said that “But if things continue as they are, then further action will be needed” and the “Key question will be how persistent core inflation is.”
BNP Paribas now sees the terminal rate at 4.00%, up from its previous forecast of 3.75%, and that view is also shared by UniCredit as they also lift their peak rate forecast for the ECB to 4.00% as well.
