Euro slips slightly as investors weigh economic data

The euro edged slightly lower in the final trading session of May, hovering near the $1.13 mark and remaining broadly stable compared to levels observed at the end of April. Currency markets remained relatively subdued as investors digested a mix of regional economic data and international trade developments.

Euro slips slightly as investors weigh economic data

Sentiment was cautious amid a renewed focus on geopolitical and monetary policy dynamics, particularly following news that a U.S. appeals court had temporarily paused a block on former President Donald Trump’s trade tariffs. The development reignited concerns over potential disruptions to global trade flows, prompting a mild shift into safe-haven assets and putting modest downward pressure on the euro. In Europe, attention was largely centered on economic indicators from the region's largest economies, offering a mixed picture of the eurozone’s recovery trajectory. In Germany, April retail sales unexpectedly declined by 1.1%, marking the first contraction in four months and missing market expectations of a modest 0.2% gain. The weakness was attributed to softer household demand, possibly reflecting lingering inflation fatigue and cautious consumer sentiment despite gradually improving wage growth and employment conditions. At the same time, disinflation trends became more evident across the euro area, bolstering expectations that the European Central Bank (ECB) will proceed with a widely anticipated 25 basis point interest rate cut at its policy meeting next week. In Spain, the consumer price index slowed to 1.9% in May—its lowest reading since October—coming in below the forecasted 2.1%. The decline was driven by easing energy and food prices, which had previously driven inflationary pressure.

Inflation slows in France

France experienced an even more pronounced deceleration in price growth. Inflation there dropped to just 0.7%, its lowest level since February 2021 and well under the consensus estimate of 0.9%. The sharp fall reinforced the view that eurozone-wide inflation is increasingly under control, supporting the case for more accommodative monetary policy from the ECB in the near term. Markets are now pricing in a strong likelihood that additional rate cuts could follow later in the year, especially if core inflation and wage growth remain subdued. Overall, while the euro held steady on a monthly basis, its near-term direction will likely hinge on the ECB’s policy decisions, ongoing inflation trends, and broader global developments—particularly the evolving U.S.-China trade narrative and the health of major economies within the eurozone.