FX.co ★ Euro Stays Near One-Year Lows on Soft Inflation

The euro rebounded to $1.14 but remained close to one-year lows against both the dollar and the pound, weighed down by softer-than-expected Eurozone inflation data and dovish comments from ECB President Christine Lagarde. Figures released on Wednesday showed headline inflation easing to 2.8% in June from 3.2% in May, below the 3.0% consensus forecast, while core inflation fell to 2.4%, undershooting expectations of 2.6%.

Speaking at the ECB’s Sintra Forum, Lagarde said that risks to both inflation and growth in the euro area had diminished. Her remarks mark a shift from the stance taken three weeks earlier, when the ECB became the first G7 central bank to raise interest rates following the Iran war, citing concerns that inflation pressures were broadening.

Since then, optimism over a potential US–Iran peace agreement has driven a sharp decline in oil prices, removing a major source of inflation pressure. Markets also took comfort from progress in indirect talks between Washington and Tehran, after Qatar said the next round of discussions would be arranged as soon as possible. Oil prices extended their slide as increasing volumes of crude passed safely through the Strait of Hormuz.