Europe continues to move forward with an increased interest rate.

In the past year, the European Central Bank (ECB) has increased its policy interest rate a total of 7 times, bringing it to 3.75%. Investors anticipate that the ECB may further increase the interest rate by 0.25% at the meeting on June 15 and possibly raise it again in another meeting on July 27. However, it may take several more years for the inflation rate, as measured by the Consumer Price Index (CPI) in the Eurozone, to reach the target level of 2%.

The inflationary pressures during this period have been driven by rapid wage growth and a strong services sector. Mr. Klaas Knot, the President of the Netherlands Central Bank, has expressed his view that Europe may have passed the worst phase of inflationary pressures. Nevertheless, it may still take some time before inflation is fully under control.

In addition, the ECB has conducted a monthly survey by asking the opinions of 14,000 individuals in the Eurozone. The survey results indicate a decrease in inflation expectations for the next 12 months to 4.1% in April, down from 5.0% in March. The expectations for the next 3 years also decreased to 2.5% in April from 2.9% in March. It is predicted that wage growth will increase slightly in the future, while unemployment will decrease. These factors contribute to a reduced negative outlook for the Eurozone economy.

Furthermore, the Eurozone economy contracted by 0.1% in the first quarter compared to the previous quarter, following a contraction of 0.1% in Q4 2022, which indicates that the Eurozone economy has entered a technical recession or a period of consecutive economic contractions for two quarters.

Mark Wall, the Chief European Economist at Deutsche Bank, expressed concerns that "we worry that a tight labor market and ongoing upward wage pressures may result in underlying inflation being higher than target." He also added, "When it comes time for the ECB to meet in September this year, the ECB may not be confident enough that inflation has slowed enough to pause the rate hikes."

Some analysts suggest that if the Federal Reserve (Fed) raises interest rates again at its meeting on July 25-26, it could be another factor that stimulates the ECB to increase interest rates on July 27. This would help maintain the strength of the euro and potentially alleviate inflationary pressures in the Eurozone. Strengthening the value of the euro can lower the cost of imported goods, thereby reducing inflationary pressures.

Technical analysis data (5H)

Resistance: 0.9298, 0.9303, 0.9308

Support: 0.9288, 0.9283, 0.9279

Source: Investing.com