The Euro weakened notably against major currencies on Wednesday following the release of preliminary Eurozone inflation data for June, which showed a sharper-than-expected slowdown. The Harmonized Index of Consumer Prices (HICP) rose by 2.8% year-on-year, undershooting both the market consensus of 3% and the previous month's 3.2% reading [1][2][4]. Core HICP, which excludes volatile items, also eased to 2.4% from 2.6% previously, below the 2.6% consensus forecast [1][2][4]. On a monthly basis, headline inflation declined by 0.1% after a 0.1% rise in May, while core inflation increased by 0.2%, down from 0.3% previously [2][4].
This cooling trend was mirrored in national data, with Germany's June inflation dropping to 2.3% from 2.6%, below the anticipated 2.5% [4]. Similar declines were observed in Italy and France [1][4]. The weaker inflation figures have led markets to lower expectations for further European Central Bank (ECB) rate hikes, pressuring the Euro. The EUR/USD pair fell below 1.1400, approaching 13-month lows at 1.1324, while EUR/JPY retreated to around 185.40, ending a four-day winning streak [1][2][4].
ECB Governing Council member Joachim Nagel commented that inflation risks remain tilted to the upside and all options are open for the July and September meetings, but his remarks provided limited support for the Euro. He also noted that inflation will stay above the ECB's target in 2027 and that the June rate increase was not an insurance hike [2]. Investors are now focused on upcoming speeches by ECB President Christine Lagarde and Federal Reserve Chairman Kevin Warsh for further policy guidance [1].
In the broader currency market, the Japanese Yen gained strength amid speculation of possible intervention by Japanese authorities and robust economic data. Japan's Finance Minister Satsuki Katayama reiterated readiness to respond to excessive currency moves, while the Bank of Japan's Q2 Tankan survey showed business sentiment surging past expectations [2][4]. The Tankan Large Manufacturing Index rose to 22 from 17 (market expected 16), and the Non-Manufacturing Index increased to 37 from 36 (market expected 35) [4].
Elsewhere, the Polish Zloty came under pressure as Poland's inflation fell to the National Bank of Poland's 2.5% target, with broad price declines and stable core inflation estimated at 3.0-3.1%. Markets have priced out rate hikes and begun to price in cuts, with around 10 basis points of easing expected in the longer term. EUR/PLN tested resistance at 4.300, and ING analysts suggest that if the NBP signals openness to a rate cut, the pair could move higher [3].
CONCLUSION
The Euro's decline was driven by a sharper-than-expected slowdown in Eurozone inflation, reducing the likelihood of further ECB rate hikes and weighing on the currency across major pairs. Market focus now shifts to upcoming central bank communications for additional policy signals, while robust Japanese data and intervention talk support the Yen. The overall market takeaway is a bearish outlook for the Euro in the near term.