Investors eye US inflation and ECB meeting this week

As investors prepare for a busy week, including the ECB meeting scheduled for Thursday to discuss policy easing and US inflation data expected Friday, the US dollar edged lower in early European trade Monday, while the European stock market is expected to open higher.

The first week of June ended on a down note for stock markets, as a strong US jobs report proved the Federal Reserve and other central banks can continue their monetary tightening policy.

Despite OPEC+ producers agreeing to accelerate output increases in the next two months, oil futures rose on Monday, with Brent reaching above $120 a barrel after Saudi Arabia raised its crude sales prices in July, signalling tight supply.

US CPI

US CPI for May will be released a few days before the next Federal Reserve meeting and will serve as a final input before the Fed decides how much to hike rates. According to forecasts, inflation will be 8.3% year over year, while core inflation (excluding energy prices) is forecast to be 5.9%. This will mark the third consecutive month where core inflation has declined, suggesting that core inflation may have peaked earlier than expected. As a result, we also see a slower wage growth rate in the jobs report. While this is the case, it is essential to note that the overall inflation number of 8.3% is close to the peak. Given the pain at the gas pumps and grocery stores, consumers may find little comfort in the core number levelling out.

European Central Bank meeting

Even though central banks worldwide are in the midst of their rate hike cycle, the ECB is seen as being at least a step or two away from it. However, the record-high inflation in the Eurozone has added even more urgency to discussions, and many analysts are expecting this meeting to confirm the rate hikes will be coming in Q3.

It is no surprise that ECB president Christine Lagarde made this statement in her blog post two weeks ago. So, this statement and the press conference that follows will be opportunities for Lagarde to clarify the way back to positive interest rates and reaffirm her bank's credibility. As evidenced by the recent growth in EUR/USD, the pair has risen 1.67% since April's end and 3.55% from mid-May lows, suggesting that the bank has regained at least some market credibility.