Eurozone Inflation Goes Red ahead of ECB Lagarde’s Speech

June 01, 2022 10:41

Inflation in the Eurozone hit a record high of 8.1 percent in May. The news comes ahead of today’s speech by ECB President Christine Lagarde. Will the central bank be able to maintain its dovish stance and rhetoric or will there be hints that interest rate guidance will change earlier than expected? The ECB is expected to end negative interest rates by September, but given the sharp spike in the inflation rate, monetary tightening may start sooner.  

What’s holding the ECB back from hiking interest rates now? Dimmer growth prospects as the conflict in Ukraine clouds sentiment and investment are the front-and-centre concern. Additionally, a weaker EUR is relatively favourable for Eurozone exports and sales, making them competitive. Once interest rates start rising in Europe, the currency is likely to strengthen against other currencies, meaning higher prices for goods and services on top of already-hot inflation. 

Growth in Germany 

Germany releases annual Retail Sales for April, expected to have grown from minus 2.7 percent in March to 4 percent in April. Any surprises could move the EUR currency pairs.  

Growth in China 

Gloom over growth in China gripped market sentiment in Asia in overnight trading. The world’s second-largest economy slowed down in May as COVID-19 lockdowns weighed on factory output. Crude oil spot prices pulled back slightly on the news, but the bullish trend may be ready to charge at the next sign of a turnaround in China’s economic fortunes.  

Growth in the US 

It’s the US’ turn to indicate if it’s staying in the fast growth lane or switching to the slow lane with the release of ISM Manufacturing PMI for May. The indicator is expected to have trimmed from 55.4 in April to 54.5 in May, and any unpleasant surprises may move the USD currency pairs.  

Australia’s GDP rises 

Australia has just announced that its GDP grew by 3.3 percent on an annual basis, a better-than-expected result. However, high inflation is pressuring consumer prices upwards and the RBA is expected to trigger more interest rate hikes in the near-term. 

Wrapping up our trading report, the ADP job figures are released tomorrow, June 2, and are expected to have risen from 247K in April to 300K in May.  

Quick tip 

Retail Sales Meaning 

Retail Sales figures show the level of sales of goods and services to consumers. The reports are released on a monthly basis and are significant in the trading markets because they account for around 70 percent of consumer spending and the figures are an accurate indicator of economic health. If the results are not in-line with traders’ expectations, there may be movements in the related currency. In the case of better-than-expected results, there could be buying interest and in the case of worse-than-expected results, the currency could be sold off. 

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks. 

Sarah Fenwick
Sarah Fenwick Financial Writer, Admirals London

Sarah Fenwick's background is in journalism and mass communications. She has worked as a correspondent covering Swiss Stock Exchange news and written about finance and economics for 15 years.