- EUR/USD recovers slightly in European trading hours amid a gradual correction in the US Dollar. The Euro’s (EUR) near-term outlook remains downbeat as market participants expect that the European Central Bank’s (ECB) policy-easing cycle could be aggressive given the steep decline in Eurozone inflationary pressures and weak economic growth.
- Economists at Bank of America (BofA) said in their latest report about the Eurozone: "We still see more cuts in 2025/26 than the markets are pricing, with a return to a deposit rate of 2% by 3Q25 (at the latest) and to 1.5% in 2026." BofA said that Europe's recovery remains fragile and it will likely be shallow, pressured by several economic factors such as slowing growth in China as well as politics.
- ECB officials also remain worried about increasing risks to Eurozone economic growth. ECB Executive board member Piero Cipollone said in an interview with a French newspaper said that there is a real risk that our stance could become too restrictive," adding that, "we must ensure that inflation converges to our target without holding back the economy unnecessarily," Reuters reported.
- On the economic front, investors await the Eurozone Retail Sales data for July, which will be published on Thursday. Economists estimate the Retail Sales to have grown by 0.1% after contracting 0.3% in June on a monthly as well as an annual basis. A slight improvement in sales at retail stores would be insufficient to dampen market speculation that the ECB will resume its policy-easing cycle this month, which it started in June, after pausing in July.
- In today’s session, investors will focus on the Eurozone Producer Price Index (PPI) data for July,w which will be published at 09:00 GMT. The PPI report is expected to show that prices of goods and services at factory gates were deflated at a slower pace of 2.5% from 3.2% in June. A sharp deflation in producer prices indicates a sharp slowdown in the overall demand. This would prompt expectations of ECB rate cuts in September.
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