Economic data from the European Union turned out better than anticipated. Inflation came in as expected, but optimism among managers responsible for orders — reflected in PMI surveys — surprised analysts. Meanwhile, the Federal Reserve is increasingly concerned about the potential impact of tariffs on inflation.
Inflation in the Eurozone
Yesterday, new inflation data for the eurozone was released. It did not trigger major market moves, which is hardly surprising. Analysts had forecast 2% and the reading came in exactly at 2%. These results are generally easier to predict since they are compiled from partial data already published by member states.
The 2% figure shows inflation is right at target. This means that any further interest rate cuts, should they occur, would be aimed at stimulating economic growth. Currently, the eurozone economy is expanding at a pace of 1.4% — a rate far below the ambitions of European leaders. Nevertheless, such rate cuts are unlikely to be frequent, suggesting that this factor may actually strengthen the euro against other currencies.
FED Meeting Minutes
The minutes from Federal Reserve meetings are published with a delay, which is why yesterday’s release reflected discussions from July. While technically outdated, some of the views expressed still carry weight in currency markets.
The key theme in the July discussion was balancing labor market risks with inflationary pressures. It turns out that policymakers are more concerned about the inflationary effects of tariffs than previously thought. Of course, the minutes included the usual statements about data dependency and flexibility, but markets concluded that a stronger focus on trade war risks makes further rate cuts less likely.
While this should not affect the September decision, the prospect of a third rate cut this year is now highly uncertain.
Stronger Economic Sentiment in Europe
This morning brought more PMI readings from the manufacturing sector, and the results point to improving sentiment in European economies. Concerns about eurozone growth prospects should ease, as major economies posted significantly stronger-than-expected results.
In both Germany and France, optimism outweighed pessimism, with scores of 49.9 points — just below the 50 threshold but still well above forecasts. As a result, the aggregate reading for the entire eurozone came in higher than expected and reached its strongest level since the post-pandemic rebound.
Today’s Key Macroeconomic Data
- 14:30 – Canada – Producer Price Inflation (PPI)
- 14:30 – USA – Jobless claims
Maciej Przygórzewski – Chief Analyst at InternetowyKantor.pl
Source: ManagerPlus.pl
