FX.co ★ Euro Holds Above $1.17 as Markets Digest ECB Outlook and Soft German Data

The euro has settled above $1.17, marking its highest point since September 2021. This strength is attributed to a weaker dollar, driven by a more dovish perspective from the US Federal Reserve and growing concerns over US fiscal matters. In Europe, attention has turned to the latest inflation data from the major economies in the region and its potential impact on the European Central Bank's (ECB) policy direction. Notably, Germany's consumer price inflation unexpectedly dropped to 2.0% in June from 2.1% in May, aligning with the ECB's target for the first time since October 2024, despite expectations for an increase to 2.2%. Conversely, inflation readings in France, Italy, and Spain saw slight increases but remained moderate overall. The sentiment was further tempered by a significant decline in German retail sales. Amid these mixed indicators, money markets still anticipate the ECB's terminal rate to hover around 1.75%–1.80%. On Monday, ECB Vice President Luis de Guindos reaffirmed that the current policy is fitting while underlining the necessity for flexibility in the face of persistent uncertainties.