Eurozone Inflation Rises to 2.6% as Euro Hits 9-Month High

Eurozone inflation increased to 2.6% year-on-year in July, slightly up from 2.5% in June. This rise beat initial economist estimates of 2.4% and reinforced concerns about persistent inflationary pressures within the bloc. 

Core inflation, which excludes volatile items such as energy and food, remained steady at 2.9%, further highlighting the European Central Bank's challenge in achieving its 2% target.

The inflation uptick has contributed to the euro's strength, pushing it to a nine-month high against the US dollar, with the currency trading at 1.1080. This surge is supported by growing expectations that the Federal Reserve might soon signal a shift towards cutting interest rates. The euro has posted gains in five of the last six trading sessions, driven by speculation that the Fed's policy direction may favor further euro appreciation.

In Germany, consumer prices rose by 2.6% in July compared to last year's, marking a modest increase from June's 2.5%. However, inflation slowed in Spain and Portugal, with Spain's rate falling to 2.9% from 3.6%, and Portugal's easing to 2.7% from 3.1%. 

Despite the euro's recent strength, some market analysts remain cautious. Danske Bank predicts a stronger US dollar, arguing that the likelihood of a steep Fed rate-cutting cycle is overestimated. As European equities edge higher, with the Euro Stoxx 50 up 0.2%, the market remains focused on upcoming signals from the Federal Reserve, particularly at the Jackson Hole symposium.