Nordea’s analysts argue that softer June inflation data should significantly lower the risk of another European Central Bank (ECB) rate hike in July. However, they stress it is too early for the ECB to declare victory on inflation, as second-round effects remain uncertain and markets have already priced out much of the previously expected tightening for this year.

Softer data cuts rate hike risk

"Today’s numbers should ease inflation concerns and significantly lower the risk of another policy rate hike already at the July meeting."

"However, it is much too early for the ECB to call off its inflation concerns, partly because it is too early to assess the extent of any second-round effects and partly because doing so would open up for criticism with regards to the June rate hike."

"Markets have priced out a significant amount of tightening, leaving less than one additional full rate hike priced for this year."

"Only in the immediate aftermath of the ceasefire announcement in April have markets priced fewer rate hikes this year."

"Inflation concerns have eased among households too but mostly for the immediate future."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)