Eurozone Confirms 2.8% June HICP as U.S. Housing Starts Data Loom

Q: After hiking rates last month to fight war-fueled inflation, will the ECB now be forced into a sudden U-turn?

No. June’s drop in eurozone inflation to 2.8% makes an immediate ECB reversal unlikely; it argues more for a pause than a sudden rate-cutting U-turn. The key point is that the ECB’s June 11 hike was aimed at a war-driven energy shock that policymakers feared could become embedded in broader prices. That risk has not vanished. Energy inflation is still high at 8.7%, services inflation remains elevated at 3.2%, and the ECB’s own June projections still saw 2026 inflation averaging around 3.0%, above target. Officials have repeatedly stressed a data-dependent, meeting-by-meeting approach and have not pre-committed to easing. What has changed is the near-term pressure. June CPI came in below both the ECB’s forecast and the European Commission’s spring outlook, suggesting the pass-through from the Middle East shock may be cooling faster than expected. That strengthens the case for the ECB to hold rates steady and reassess, especially as eurozone growth is weak and some economists have warned that further tightening could deepen a slowdown. A true U-turn would require more than one softer inflation print. The ECB would want evidence that disinflation is durable, especially in core and services, and that energy volatility is no longer threatening second-round effects through wages and expectations. For now, the most plausible path is caution: no rush into more hikes, but no forced reversal into cuts either.

3 articles · Updated · XTB · Jul 17

Eurozone inflation was due for final confirmation at 2.8% year on year in June, down from 3.2% in May, with core HICP seen at 2.4%.
14:30 U.S. data then becomes the main market test, with housing starts expected at 1.31 million after 1.177 million and permits seen at 1.40 million.
EUR/USD was flagged as especially sensitive because the inflation release and U.S. housing figures arrive the same day, while ECB board member Piero Cipollone was also scheduled to speak.
Wall Street entered the session under pressure after tech-led declines and weaker semiconductor spending outlooks, leaving macro data to steer sentiment after a volatile week.