Uncertainty and Inflation Concerns: A European Currency Outlook for Q3

Monday’s European session saw the euro trading at 1.0727, up 0.34% on the day. However, Germany’s Business Climate took a surprise dip, declining to 88.6 in June from 89.3 in May and missing the market estimate of 89.7. The German economy has been struggling, with inflation rates fluctuating. In March and April, Germany’s inflation rate fell to a three-year low of 2.2%, before rising to 2.4% in May. The European Central Bank is closely monitoring the inflation picture in Germany and the Eurozone, hoping that inflation will gradually drop towards the 2% target.

Inflation concerns have led to uncertainty in the markets, with an initial rate cut expected in September but not guaranteed. Meanwhile, attention in the US will be on statements from two FOMC members, Christopher Waller and Mary Daly, who signal only one rate cut by the end of the year compared to three earlier in the year. The Fed has been hawkish, signaling only one rate cut by the end of the year compared to three earlier in the year due to concerns about inflation and a cautious approach to rate cuts.

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