Euro grinding higher
Ahead of the July 9 deadline, a Bloomberg News report that the EU is willing to accept a trade arrangement with the US that includes a 10% tariff on many of its exports, but wants the US to commit to lower tariffs in some specific areas like cars and steel, is providing modest support to the euro this morning. The single currency has gained ground against both the dollar and sterling, trading at around $1.1790 and £0.8570 respectively. The pound, meanwhile, is a touch firmer against the dollar at about $1.3750.
US government bond yields continue to grind lower, even as Trump’s deficit-boosting “One Big Beautiful Bill” continues its way through Congress, with 10-year yields falling by around 5bps to about 4.20%, their lowest level in a couple of months. UK 10-year yields also nudged lower, to just under 4.50%, while equivalent German yields finished flat on the day at 2.60%. In equity markets, European stocks ended around 0.5% lower while the S&P 500 in the US closed out the second quarter at a new all-time high, advancing by 0.5% to take its gains in Q2 – which we all remember kicked off with Trump’s Liberation Day reciprocal tariffs on April 2 – to almost 11%.
The ECB has published the results of its recent Monetary Policy Strategy assessment. It didn’t contain anything very new really, with the Governing Council confirming that “price stability is best maintained by aiming for 2% inflation over the medium term,” and saying that, in an environment where the outlook for inflation “will remain uncertain and potentially more volatile, (it) recognises the importance of appropriately forceful or persistent monetary policy action in response to large, sustained deviations of inflation from the target in either direction.”
Ahead of this morning’s flash reading for Euro area inflation in June, inflation in Germany last month came in lower than forecast, dipping to 2% from 2.1% in May (the consensus had expected it to nudge up to 2.2%). Inflation in Italy also came in lower than expected, remaining at 1.7% in June versus 1.8% expected. Regarding today’s reading for the Euro area as a whole, the consensus expects headline inflation to have ticked up to 2% from 1.9% in May with core inflation forecast to remain at 2.3%.
In the UK, house prices fell for the third month in four in June according to the Nationwide measure, with a 0.8% decline on the month pushing the annual increase in prices down to 2.1%, from 3.5% in May and a recent peak of 4.7% last December.
For the day ahead, as well as Euro area inflation, other economic data due include final readings for the June manufacturing PMIs in the main economies and the ISM manufacturing index and job openings in the US. The ECB publishes its latest survey of consumers inflation expectations, while its Forum on Central Banking continues for a second day.