ECB tightening case looks 'thin'

The euro edged towards the 1.145 level against the dollar on Thursday, though it has trailed the pound so far this week in the wake of Wednesday's softer-than-expected Euro Area inflation report. Headline inflation slipped to 2.8% last month, while the core measure also eased to 2.4% - now only marginally above the ECB's 2% target.

There is little evidence yet that the recent energy price spike is feeding through meaningfully to underlying price pressures, which should ease pressure on the ECB to raise rates again later in the year.

President Lagarde again stressed at the Sintra conference this week that the June rate increase was not an insurance hike, although the case for further tightening appears thin absent a firming in inflation in line with the ECB’s projections.

With markets now calling into question whether the ECB will raise rates at all during the rest of the year, the common currency is finding only modest gains hard-won, with any advances proving small and quick to fade. Revised PMI figures for June will be released this morning, followed by a couple of additional speeches from Governing Council officials.