The Eurozone is still grappling with ongoing inflation

The European Central Bank (ECB) to consider raising interest rates again in the coming week. Reports indicate that inflation in Germany, the largest economy in the Eurozone, continues to increase steadily, with a 6.8% rise in June this year. In comparison, other countries in the European Union have announced inflation rates at only 5.5%, which are showing a consistent downward trend.

This situation has led to fluctuations in the yields of German government bonds. The 2-year German government bond yield (DE2YT=RR), which is highly sensitive to interest rate policy forecasts, has dropped by 3 basis points to 3.23%. Meanwhile, the benchmark 10-year German government bond yield (DE10YT=RR) has decreased by 2 basis points to 2.43% and has seen a consecutive two-week decline of 4.6 basis points.

While German inflation remains elevated, some analysts predict that the ECB's interest rate hike in the upcoming meeting might be the last one, especially if economic data confirms a downward trajectory in inflation. The market will closely watch Christine Lagarde, the President of the ECB, as she plays a crucial role in this context, and investors will seek more data to make informed investment decisions.

Analysts predict that Christine Lagarde might not explicitly state the necessity of raising interest rates or provide any clear indication about future policy in the upcoming meeting. Christoph Rieger, the Head of Rates and Credit Research at Commerzbank, expressed his opinion that the ECB is unlikely to signal another rate hike clearly during the September meeting. However, Rieger also believes that the current interest rate hikes are affecting market returns, which have been declining.

Consumer confidence figures in the Eurozone show an increase to -15.1 in July, reaching the highest level since February 2023. This value is better than the market's preliminary estimate of -16 and is mainly due to a slow recovery from abroad.

Moreover, borrowing costs in the Eurozone are trending downward after data from the UK and the United States indicated a continuous decline in inflation rates compared to earlier this year. ECB officials, including Klaas Knot, the President of the Netherlands' central bank, have stated that a rate hike in September may not be necessary.

Techical analysis data (5H)

Resistance: 0.9038, 0.9043, 0.9052

Support: 0.9024, 0.9015, 0.9009

Source: Investing.com