On Wednesday afternoon, the European Department of Statistics will release inflation data for the European Zone region. The expectation is that inflationary pressures will begin to ease although there is a risk it will continue to soar.
After several times the European zone was affected by the impact of the ‘lockdown’ measure, the European zone economy has finally managed to bounce back. The latest PMI business survey shows the economy is growing rapidly, reflecting the momentum and wider distribution of vaccinations that are driving consumer spending and hiring.
Aside from all the positive data, the question remains whether this momentum can be maintained or will it fade after? On the other hand, government spending in the European Zone is not very encouraging compared to America.
Another risk is delta variant mutations that have begun to spread rapidly throughout Europe. However, a large number of people have received at least one vaccination shot which means it can curb the spread from moving fast. But if this variant continues to spread then it will stop the process of economic opening up as is happening in Portugal.
On the other hand, the economy is performing very well in June, which makes the probability of inflation declining low. However, market projections show that the annual CPI will decline to 1.9% in June from the previous figure of 2.0%.
A positive surge is likely to push the Euro closer for a while but it may not change the tone of the ECB which believes the inflation surge is only temporary.
In the long run analysts believe that the US will record a faster economic recovery than Europe leading to the risk of a depreciation of the euro/dollar. The economic recovery will have implications for monetary policy.
The Euro depreciated by 0.13% against the US dollar at the trading level of 1.1908.
