Eurozone June Harmonised Inflation Commentary: Short-Term Profit Potential for Euro Bulls

TradingKey - On 17 July 2025, the Eurozone's June Harmonised Inflation data was released, aligning with market expectations. The headline HICP rose slightly from 1.9% in May to 2.0%, while core HICP remained steady at 2.3%. The modest 0.1 percentage point increase in headline HICP was primarily driven by seasonal factors. Given the weak economic recovery and declining medium-term oil prices, Eurozone inflation is expected to continue its downward trend. This "low growth, low inflation" environment suggests that the European Central Bank (ECB) is likely to maintain its rate-cutting policy. In the short term (0-3 months), global market dynamics, including Trump’s tariff policies and the ongoing trend of de-dollarisation, are expected to drive a decline in the US dollar index, providing temporary support for the euro exchange rate. Consequently, euro bulls may find profitable opportunities against the dollar. However, in the medium term (3-12 months), the ECB’s continued rate cuts are likely to exert downward pressure on the euro’s value.

Source: TradingKey

Main Body

On 17 July 2025, the Eurozone released its June Harmonised Inflation data, which met market expectations. The headline Harmonised Index of Consumer Prices (HICP) edged up from 1.9% in May to 2.0%, while core HICP remained unchanged at 2.3% (Figure 1).

Figure 1: Market Consensus Forecasts vs. Actual Data

Source: Refinitiv, TradingKey

Since the beginning of 2025, the Eurozone's HICP year-on-year growth has continued to decline, driven by a sluggish economic recovery and falling energy prices. More specifically, the headline HICP growth rate dropped significantly from 2.5% in January to 1.9% in May, falling below the European Central Bank’s 2% policy target (Figure 2). Although June saw a slight 0.1 percentage point increase in headline HICP from the previous month, this uptick was primarily due to seasonal factors and does not alter the broader trend of slowing harmonised inflation.

Figure 2: Eurozone HICP (%, y-o-y)

Source: Refinitiv, TradingKey

Despite a recent uptick in international oil prices, supply-side factors are expected to drive a gradual decline in crude oil prices over the coming quarters (Figure 3). More specifically, OPEC+ continues to hold significant spare capacity, while energy policies under the Trump administration are expected to further suppress oil prices. This decline in energy prices will likely translate into downward pressure on the Eurozone’s HICP, intensifying the trend of slowing harmonised inflation.

Figure 3: Crude Oil Prices (USD/bbl)

Source: Refinitiv, TradingKey

With the Eurozone experiencing slower economic growth and inflation no longer being the primary concern, the European Central Bank (ECB) initiated a rate-cutting cycle starting in June 2024. To date, the ECB has reduced its policy rate by a cumulative 235 basis points (Figure 4). Given the persistent "low growth, low inflation" economic environment, we expect the ECB to maintain its accommodative monetary policy. By the end of 2025, the Eurozone is likely to enter a low-interest-rate environment.

In the short term (0-3 months), global foreign exchange markets are likely to be driven by Trump’s tariff policies and the ongoing trend of de-dollarisation. These factors are expected to weaken the US dollar index, providing temporary support for the euro exchange rate. As a result, euro bulls may find profitable opportunities against the dollar. However, in the medium term (3-12 months), the European Central Bank’s continued rate cuts are anticipated to exert downward pressure on the euro’s value.

Figure 4: ECB Policy Rate (%)

Source: Refinitiv, TradingKey

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