The possibility of a rate hike by the European Central Bank (ECB) in July has come into question as officials have started to note weaker economic data. During the last meeting, ECB President Christine Lagarde expressed that a rate increase in July was likely. However, ECB official Yannis Stournaras, who serves as the head of the Bank of Greece, has stated that incoming data does not support this optimistic outlook.
“We are seeing signs of economic weakening,” Stournaras stated. “While our baseline scenario still expects positive growth, it is becoming apparent that this may not be the case.”
Stournaras emphasized that the decision to raise rates in July is not set in stone. “If future developments indicate that it is unnecessary, we will adjust our course accordingly.”
Following the release of the interview, new data revealed a slower-than-expected growth in industrial production across the Eurozone in May. This weakening trend is expected to persist in the coming months, with surveys indicating a decrease in backlogged and new orders. The global demand is experiencing a sluggish period, which is reflected in the subdued outlook for the manufacturing sector, according to Bert Jolijn, senior economist for the Eurozone at ING.
Despite these concerns, the euro managed to strengthen against the US dollar on Thursday morning, reaching $1.1170 compared to $1.1130 on Wednesday. Traders attributed this reaction to the increased signs of disinflation in the United States.
In tandem with these developments, the yield on the 2-year German bund saw a 7 basis points drop to 3.16%.