Euro Slips as Cooling Inflation Opens Door to ECB Rate-Cut Bets

The Euro weakened across the board after June inflation data printed below expectations, shifting the market's focus from whether the ECB will hike again to when it might start cutting.

Headline inflation slowed to 2.8% from 3.2%, while core inflation eased to 2.4% from 2.6%. Both undershot consensus forecasts. The numbers suggest the oil price spike in the second quarter did not generate the second-round inflation effects the ECB had flagged as a risk.

A July pause was already priced in. The new data also lowered the probability of a September hike, traders said. If inflation continues to moderate, the market may begin pricing rate cuts in early 2025. That would remove a key source of Euro support, especially with the Federal Reserve maintaining a comparatively hawkish stance.

The Dollar held firm despite ADP employment slowing to 98,000 from 112,000, missing expectations. Traders largely dismissed the print, citing the weak correlation between ADP and the official Non-Farm Payrolls data. Attention shifted to Fed Chair Kevin Warsh's appearance at the ECB Forum in Sintra. Warsh is unlikely to offer explicit forward guidance, reaffirming his commitment to price stability could reinforce the Dollar ahead of Thursday's payrolls report, the week's defining event for Fed expectations.

The Japanese Yen continued to underperform, falling to fresh four-decade lows against the Dollar as Tokyo refrained from escalating its verbal intervention campaign. The Canadian Dollar was the second weakest performer, followed by the Swiss Franc. At the other end, the New Zealand Dollar led gains, supported by resilient risk appetite, with Sterling and the Australian Dollar also outperforming.

The Dollar and Euro sat near the middle of the weekly rankings, for different reasons. The Dollar climbed gradually as markets looked ahead to payrolls. The Euro slipped as expectations for further ECB tightening faded.

Silver may not need a hot payrolls report to fall further. Fed Chair Warsh's "talk less" philosophy could tighten financial conditions without a single policy change, triggering the next leg lower.

The NASDAQ may already have finished consolidating after its strongest quarter in six years. A Goldilocks Non-Farm Payrolls report could be the final green light for another push to record highs.

US ADP employment rose just 98,000 in June, missing forecasts as hiring slowed ahead of Non-Farm Payrolls, while wage growth remained resilient.

Eurozone inflation slowed more than expected in June as headline CPI fell to 2.8% and core inflation eased to 2.4%, strengthening the case for the ECB to keep interest rates unchanged.

Eurozone factory activity continues to expand, supported by cheaper energy and improving supply chains. The next stage of the recovery will depend more on genuine demand than inventory building.

UK Manufacturing PMI eased to 52.5 in June as client stockpiling began to fade, though factory output remained strong and lower energy prices helped cool inflation pressures.

The latest BoJ Tankan survey delivered another upside surprise, the strongest business confidence since 2018 comes with a notable warning about the months ahead.

Japan's manufacturers just delivered their strongest quarter in more than a decade. Booming AI demand and temporary stockpiling are telling two very different stories about the outlook.

Australia's manufacturers are looking beyond today's supply disruptions. Despite higher costs and delivery delays, firms continued hiring and building inventories, positioning for a stronger recovery once demand improves.

Intraday bias in EUR/GBP is back on the downside with a break of 0.8601 support. Sustained trading below the 0.8618 Fibonacci level should confirm a bearish reversal. The next target is 0.8466. Risk stays on the downside as long as 0.8686 resistance holds.

In the bigger picture, focus is on the 38.2% retracement of 0.8221 to 0.8863 at 0.8618. A strong rebound from there would retain medium-term bullishness. The rise from 0.8221 should resume through 0.8863 at a later stage. A sustained break of 0.8618 would confirm the whole rise from 0.8221 has completed at 0.8863, with deeper decline to the 61.8% retracement at 0.8466.