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09/07/24
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EUR Flat on Tumbling Investor Confidence
On Tuesday, the euro showed little movement and EUR/USD traded at about 1.0819, 0.05% higher for the day.
On Monday, the Sentix Investor Confidence index for the eurozone resumed its decline. In July the index slipped to -7.3, after gaining 0.3 in June. Before the June reading, the index had dropped continuously since Mar. 2022.
Although there have been indications that the eurozone economy is starting to recover, investors aren’t optimistic about the economic outlook in the eurozone.
In the eurozone, the inflation scenario has improved vastly. The ECB’s steep rate-tightening cycle has reduced inflation from double-digits down to June’s 2.5%. Although inflation is still higher than the ECB’s 2% inflation target, the central bank last month decided to lower rates, confident that inflation will drop lower.
Last week, ECB Vice President Luis de Guindos said he expected a rough road for inflation in the next few months and that there was no specific path for rate decisions.
Although the markets are pricing in a cut at the meeting on July 18 at 33% there is a strong possibility of two rate cuts before the end of 2024. Whether that forecast materializes will depend largely on inflation data. ECB policymakers are especially worried about services inflation, which is running at 4.1%.
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