Eurozone Inflation Stagnates at 2% While the Euro Slips Against the Dollar

Eurozone Inflation Closes at 2% in July, Offering Relief to the ECB

Persistent Core Rate and Policy Outlook

The Eurozone reported a July inflation figure of 2%, mirroring the year‑ago pace and signalling that the price level is stabilising. The data confirms that the foundations of the European Central Bank’s (ECB) easing stance remain intact and may extend the period before a rate hike is inevitable.

ECB’s Response to the Stable Prices

With inflation anchored at 2%, the ECB can continue to pursue a gradual tightening cycle without the looming risk of a sudden spike. The bank’s forward‑looking guidance suggests a readiness to maintain accommodative measures for now, focusing on inflation dynamics and economic growth rather than immediate rate cuts.

Euro’s Shares Lag Behind as Tensions Mount

Despite the reassuring inflation reading, the euro has moved toward its most challenging week since 2022, falling significantly against major counterparts. Trade frictions involving key partners and robust U.S. economic indicators have heightened market volatility, dampening investor optimism.

Trade Tensions and U.S. Data Spark Market Volatility

Recent diplomatic strains in global trade corridors, coupled with strong American manufacturing and employment data, have inflated uncertainty in currency markets. These factors combine to produce a competitive environment where the euro struggles to maintain momentum.

Eurozone Inflation Holds Steady, Giving ECB a Breathing Space

Recent data from Eurostat indicates that consumer prices in the euro‑area increased by 2% year‑over‑year in July, mirroring the same growth rate observed in June. Monthly price change was flat, signalling a pause in the inflation surge.

Key Highlights

• Contrary to expectations of a slight decline to 1.9%, the inflation figure confirms the effectiveness of the ECB’s current policy framework.
• Core inflation – excluding the most volatile food and energy items – remained steady at 2.3%, though the month‑to‑month value slid by 0.2%, marking the first negative movement since January 2025.
• Energy prices continued to trend downward, registering a negative change of -2.5%.

Sector‑by‑Sector Analysis

• Food, alcohol and tobacco recorded the largest annual rise at 3.3% in July, up from 3.1% in June.
• Services experienced a slight deceleration, dropping from 3.3% to 3.1%.
• Industrial goods excluding energy rose to 0.8%, while non‑energy industrial items noted a modest increase.

Country‑Specific Movements

• Estonia and Croatia showcased the highest annual inflation rates at 5.6% and 4.5%, respectively.
• France and Cyprus saw the lowest figures, standing at 0.9% and 0.1%.
• Monthly price changes varied: Croatia’s inflation climbed by 1.2%, whereas Italy experienced a decline of 1%.

Overall, the data reflects a gradual cooling of price pressures across the eurozone, lending the ECB greater flexibility to pursue its monetary objectives while keeping an eye on any emerging risks.

ECB policy outlook: Wait and see

ECB Holds Interest Rates Steady, Ending One‑Year‑Long Easing Cycle

The European Central Bank announced that it will keep its rates unchanged for the month of July, signalling the conclusion of a twelve‑month easing programme that saw borrowing costs cut eight times. These rates are now at levels not seen since November 2022.

Key Takeaways

• Rate Decision: No change in policy rates for July.
• End of Easing: Completion of a full year of rate cuts.
• Lagarde’s Assessment: President Christine Lagarde points out the bank is “in a good place” but notes uncertainty about the future effects of tariffs amidst mixed inflationary pressures.
• Inflation Outlook: Recent data supports the ECB’s wait‑and‑see stance, with policymakers focusing on the impact of the EU‑US trade agreement on price dynamics.

With the ECB’s policy stance now clarified, the focus shifts to how the EU‑US trade deal will influence the broader price environment and to monitoring inflation trends that could affect future decisions.

Related

• Eurozone growth slows: Spain leads and Germany contracts
• Spain’s economy grows 0.7% as it continues to outshine eurozone peers

Is the euro under renewed pressure?

The Euro Slips into Red for July

Notable Performance Since the Month’s Start

After a robust first half of July, the single currency finished the month in negative territory—marking its first monthly decline of the year.

End‑Month Deterioration

• The euro weakened 2.8% against the U.S. dollar in the final week, touching 1.14, the lowest level in seven weeks.
• Newly announced trade terms between the United States and the European Commission tipped the balance in favor of Washington.

Drivers Behind the Slide

• Strong U.S. economic indicators and an uptick in domestic inflation.
• The Federal Reserve’s decision to keep rates at 4.25–4.50% without signalling imminent cuts.

Historical Context

The currency experienced its worst weekly loss since September 2022, when energy market instability pushed it below parity at a low of $0.9535.

Outlook

Although current conditions are less severe than three years ago, upcoming data releases and the evolving effects of tariffs and trade policies will be crucial in shaping the euro’s path for the rest of the year.

Market reaction: Equities retreat amid tariff uncertainty

European Equity Markets Slide on Trump Trade Tariff Revelations

Friday’s trading session was marked by a pronounced dip in European stocks, triggered by President Trump’s latest tariff policy. The administration announced a universal 10% base tariff on imports and introduced punitive levies, ranging from 25% to 41%, targeting nations that lack established trade treaties. These newly imposed charges sparked swift negative sentiment across the continent.

Impact on Major Indexes

• EURO STOXX 50 fell 1.7%
• STOXX 600 slipped 1.3%
• DAX (Germany) down 1.7%
• FTSE MIB (Italy) lost 1.9%
• CAC 40 (France) declined 1.8%

Key Nations Adversely Hit

• India – most affected by the new tariffs
• Canada – also saw significant price erosion
• Switzerland – among the hardest hit
• China – exempted until a separate deadline on 12 August

Large‑Cap Companies in Trouble

Several high‑profile stocks began the day with steep losses:

• AXA down 6% after a weaker net‑income report
• Daimler Truck fell 5% following a profit warning
• Siemens Energy – drop above 3%
• Sartorius – decline over 3%
• Airbus – loss exceeding 3%

Pharmaceutical Sector Under Pressure

The U.S. government sent correspondence to seventeen major drug manufacturers asking for lower prices. This led to a cascade of sell‑offs in the sector:

• Novo Nordisk slumped 4.7%, marking a 33% weekly drop – the steepest swing the company has ever recorded

Takeaway

Investor anxiety surrounding trade policy foreshadows further volatility, especially for firms drawing heavily from global supply chains and those whose earnings are sensitive to tariff changes.