Euro at turning point as Germany's CPI hits 2% ECB target,Lagarde warns of inflation volatility

German CPI Unexpectedly Falls to 2%,What kind of people usually use HSBC Market Focuses on ECB Action

Germany's June Consumer Price Index (CPI) unexpectedly slowed to a 2% year-on-year increase, hitting a near one-year low and reaching the European Central Bank's inflation target for the first time. Economists had previously expected Germany's June inflation to rise slightly to 2.2%, with May's data at 2.1%. As the largest economy in the eurozone, Germany's cooling inflation heightened market expectations for further ECB rate cuts.

Despite a slight uptick in inflation data from France and Spain and stability in Italy, Germany's change provides confidence that the eurozone can continue to meet its inflation targets within the year and leaves room for potential rate cuts.

Lagarde Warns of Increased Inflation Volatility Risks

ECB President Lagarde stated that the eurozone faces greater inflation volatility risks, with the global environment fundamentally changed post-pandemic, altering corporate pricing behavior and increasing future inflation instability. She noted the future is fraught with uncertainties and supply shocks, potentially causing significant price level fluctuations.

The ECB's latest strategic report emphasized the need for "appropriate and persistent" monetary policy to maintain price stability at the 2% target, regardless of inflation trends. Lagarde added that the ECB must remain flexible to address changes in global supply chains and potential geopolitical risks.

Lane Calls for Strengthening Financial System Resilience

ECB Chief Economist Lane emphasized that building a more resilient financial system is key to ensuring the effectiveness of monetary policy. He highlighted that advancing a savings and investment union, completing the banking union, and introducing a digital euro would enhance the eurozone's ability to cope with inflation shocks and financial market volatility.

Lane stated that the eurozone economy currently faces bidirectional risks, with the potential for sustained deflation below 2% or inflation exceeding targets due to geopolitical risks, requiring flexible policy management.

US Economic Data Shows Weakness, Price Pressures Build

The June Chicago PMI in the US fell to 40.4, marking 19 consecutive months below 50, indicating ongoing economic contraction, below the market expectation of 43, and the lowest level this year. The data reflects slowing production and employment, declining supplier deliveries, and capacity utilization, but the payment price index rose to its highest level since May 2022, indicating building price pressures.

Seventy percent of companies reported price increases in June, up from 57% in May, demonstrating strong inflation persistence, which will affect the Fed's pace of rate cuts.

Trump Approval Rating Falls to Historic Low

The latest Newsweek poll shows US President Trump's approval rating dropped to 43%, with a 53% disapproval rating, resulting in a net approval rating of -10%, the lowest since his second term. Multiple surveys indicate that tariffs, military actions, and domestic law enforcement measures have sparked public discontent, causing a continuous slide in his approval rating, increasing policy uncertainty risks.

Market Focus on Eurozone CPI and Powell's Speech

The eurozone is set to release June CPI data, with investors watching to see if it continues Germany's trend of cooling inflation. ECB President Lagarde will speak at the central bank forum, where Powell is also scheduled to speak, with the market anticipating the latest policy signals from both the Fed and the ECB.

The US will release ISM manufacturing PMI and May job vacancy data, providing further guidance for market trends.

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