Eurozone preliminary Harmonized Index of Consumer Prices (HICP) data for May showed a year-on-year increase of 3.2%, up from 3% in April, according to data released on Tuesday [1][2]. The core HICP, which excludes volatile components such as food, energy, alcohol, and tobacco, rose to 2.5%, surpassing both the previous month's 2.2% and the market consensus of 2.4% [1][2]. On a monthly basis, headline HICP increased by 0.1% and core HICP by 0.3% [2].
The Euro (EUR) initially nudged higher against the US Dollar (USD), reaching session highs at 1.1650 before retreating to 1.16440 at the time of writing [1]. Source 2 notes that EUR/USD dropped to near 1.1640 but remained marginally up from Monday’s closing price at 1.1631 [2]. The Euro was the strongest against the New Zealand Dollar, gaining 0.20%, and showed mixed performance against other major currencies, including a 0.10% gain against the USD [2].
Market sentiment was lifted by a ceasefire between Israel and Hezbollah in Lebanon, contributing to the moderate Euro recovery, though investors remain cautious after Iran suspended peace talks with the US due to ceasefire violations [1]. In the US, strong ISM Manufacturing PMI data and upcoming JOLTS Job Openings and Nonfarm Payrolls reports are keeping US Dollar dips limited [1].
The higher-than-expected core inflation reading is expected to bolster expectations for an interest rate hike by the European Central Bank (ECB) at its policy meeting next week [2]. Both sources indicate that the ECB is likely to hike rates in June, with ECB officials recently emphasizing the need to tighten monetary conditions to contain escalating inflation expectations [1][2]. Technical analysis shows EUR/USD consolidating near the top of its recent trading range, with resistance at 1.1660 and support at 1.1610, suggesting a broadly neutral near-term stance [1].
CONCLUSION
Eurozone core inflation exceeded expectations in May, reinforcing market anticipation of an ECB rate hike next week. While EUR/USD remains steady, geopolitical developments and strong US data are influencing currency movements. The market is closely watching upcoming ECB and US economic releases for further direction.