On July 2nd, data released by Eurostat showed a significant slowdown in the Eurozone's headline Consumer Price Index (CPI) for June. The year-on-year increase eased from 3.2% in May to 2.8%, notably below the market consensus of 3.0%. This marks a striking retreat in inflation following the energy crisis.
The core inflation rate, which excludes volatile food and energy prices, also provided a positive surprise, declining from 2.6% to 2.4%. More crucially, services inflation—a key indicator for the European Central Bank to gauge domestic price pressures—saw a substantial drop from 3.5% to 3.2%.
Looking at individual nations, the Eurozone's three largest economies all recorded slower price growth than anticipated, with France's inflation rate even briefly falling back to the ECB's 2% target. The broad-based deceleration in food, energy, and service prices is largely attributed to increased market bets on progress toward peace in the Middle East.
In other news, U.S. manufacturing activity expanded for a sixth consecutive month in June, indicating continued growth in the factory sector supported by capital expenditure, AI-related investment, and defense demand. However, business outlooks remain cautious, and manufacturing employment has not shown significant improvement, despite some easing in raw material cost pressures.
Data from the Institute for Supply Management (ISM) revealed that the U.S. manufacturing PMI dipped by 0.7 points to 53.3 in June but remained near a four-year high. A reading above 50 signifies expansion. The latest figures suggest the U.S. manufacturing sector is experiencing its longest stretch of expansion since 2022.
On the cost front, the pace of raw material price increases slowed notably in June. The ISM Prices Paid Index plunged 9.1 points to 73, marking its largest monthly decline since July 2022.
Data points to watch today include the Eurozone's May unemployment rate, U.S. June non-farm payrolls (seasonally adjusted), U.S. initial jobless claims for the week ending June 27th, and U.S. May factory orders month-on-month.
Dollar Index
The U.S. Dollar Index moved higher yesterday, closing with modest gains and currently trading around 101.40. Support near the 101.00 level provided technical buying interest, while renewed expectations for Federal Reserve rate hikes also contributed to the index's advance. However, the overall weakness of U.S. economic data released during the session limited the extent of the rebound. Resistance is anticipated near 101.80 today, with support around 101.00.
EUR/USD
The Euro declined against the U.S. Dollar yesterday, ending the session slightly lower and currently trading near 1.1380. The pair faced pressure from profit-taking activities and the strengthening expectations for Fed interest rate hikes. Additionally, the disappointing Eurozone CPI figures released during the session further weighed on the currency. Resistance is seen near 1.1450 today, while support lies around 1.1300.
GBP/USD
The British Pound appreciated against the U.S. Dollar yesterday, closing with a slight gain and currently trading around 1.3290. The primary support came from a reduction in concerns over UK political uncertainty. Nonetheless, the advance was capped by heightened Fed rate hike expectations and the release of weak UK economic data. Resistance is eyed near 1.3400 today, with support around 1.3200.
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