The euro strengthened above $1.07 as investors awaited the overall Eurozone inflation figures for Tuesday. These figures could provide further clues about the European Central Bank’s policy direction. In Germany, the largest European economy, the national consumer price index (CPI) remained unchanged at 2.2% in April, slightly below the forecast of 2.3%. However, the EU-harmonized reading edged up to 2.4%, surpassing March’s near three-year low of 2.3%. Spain’s inflation rate also increased to 3.3%, driven by rising food and gas prices. Meanwhile, the core inflation rates in both Germany and Spain slowed to fresh multi-year lows, primarily due to decelerating services inflation. 

The ECB has clearly signaled its intention to start lowering borrowing costs in June, amid gradually diminishing price pressures and indications of weakening economic activity. On the other hand, the Federal Reserve in the US is unlikely to implement any reductions in borrowing costs before September. 

(EURUSD Six-month Chart) 

On Monday, the Stoxx 50 index surrendered its initial gains, dipping by 0.5% to settle at 4,983 in the wake of market reaction to fresh inflation reports and company financial results. Notable losses in the index’s significant sectors contributed to the downturn. The luxury brand leaders LVMH and Hermes experienced a 2% decline each, exerting a substantial drag on the Eurozone’s premier index, whereas Inditex saw a 1.7% drop. In the technology segment, both ASML and SAP witnessed declines exceeding 1%. In other developments, BBVA’s shares edged down by 0.8% even though the bank announced a notable 19% surge in net income. Meanwhile, Deutsche Bank shares plunged 8% amid revelations that an ongoing legal dispute might inflict a financial blow of up to €1.3 billion on the bank. 

(Stoxx 50 Index Six-month Chart) 

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