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Euro area core inflation stays subdued as ECB hike case firms

In the US, headline PCE came in at 3.7% y/y while core PCE matched forecasts, lifting yields and weighing on EUR/USD after data revisions to Q2 GDP.

Reported · Written up by our desk · Central Banks

Action Forex said this week’s limited data still pointed to a key divergence for the ECB outlook, with energy-driven price gains failing to show broader, second-round pressure in parts of the euro area.

The outlet cited August inflation prints for France and Spain, where headline inflation rose to 2.7% y/y in France and 4.5% y/y in Spain, linked to higher energy costs, especially motor fuels. It noted that core inflation declined in both countries, arguing the energy shock had not generated indirect effects six months after the Iran war began.

Action Forex added that the subdued underlying inflation supports its view that the ECB will hike rates by 25 basis points in September, but it expects no further hikes. The outlet also said it no longer expects a cut in the ECB deposit rate back to 2.00% in 2027, citing a resilient euro area growth backdrop.

The report also linked cross-asset moves to US and euro zone data, saying revised Q2 GDP confirmed 1.5% SAAR growth but lifted private consumption, imports, and the price deflator, with corporate profits increasing sharply. It reported US headline PCE at 3.7% y/y in July and core PCE at 3.3% y/y, and said yields rose across the curve while EUR/USD moved lower, alongside weaker consumer confidence in August and a stronger-than-expected Ifo in Germany.

Latest closeEUR/USD 1.166 ▼0.1%

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