FXTRADING Economic Data Summary (Asia-Pacific | 06/03)

Eurozone Inflation Rises Again

Eurozone inflation accelerated again in May, further strengthening market expectations that the European Central Bank will raise interest rates next week. Data showed that headline CPI in the Eurozone rose to 3.2% year-on-year in May, in line with market expectations, while core CPI climbed to 2.5%, above the expected 2.4%. Compared with the headline figure, the rebound in core inflation attracted greater market attention, as it suggests that price pressures are no longer limited to energy and are beginning to spread across more sectors of the economy.

From a structural perspective, energy prices remained the biggest contributor, with annual inflation rising from 10.8% to 10.9%. However, what truly concerns the market is that services inflation accelerated from 3.0% to 3.5%, indicating that rising costs are increasingly being passed through to consumer and service sectors. In contrast, inflation for food, alcohol, and tobacco slowed from 2.4% to 2.0%, partially easing overall pressure. Hawkish rhetoric within the ECB has continued to increase recently, reflecting policymakers growing concerns about sticky inflation. FXTRADING believes that inflation pressures in the Eurozone are gradually spreading from energy into the broader domestic economy, and as long as core CPI remains elevated, the ECB is likely to maintain a relatively hawkish stance in the near term.

Bank of England Not Rushing to Raise Rates Again

Bank of England Governor Andrew Bailey recently stated that while rising energy prices could continue to push inflation higher, it does not necessarily mean interest rates must be raised immediately. Against the backdrop of still-weak economic growth, the Bank of England prefers to observe developments further before deciding on the next policy direction.

Bailey believes that most current inflationary pressure still comes from energy rather than broad-based overheating in demand, meaning policymakers need to retain greater flexibility. He also said that the Bank of England will continue monitoring the impact of Middle East tensions on the UK economy and inflation, adjusting policy according to incoming data. Markets currently expect the UK to deliver only one additional 0.25 percentage point rate hike by the end of 2026, a significant downgrade from previous expectations. FXTRADING believes that the Bank of England is currently placing greater emphasis on growth risks, and even if inflation rises again in the short term, future policy adjustments will likely remain cautious.

US Economic Resilience Continues to Strengthen

The US ISM Manufacturing PMI rose to 54.0 in May, far above market expectations of 52.6 and marking the highest level since May 2022. The data suggest that US manufacturing conditions are improving significantly. Currently, only around 2% of manufacturing GDP remains in contraction territory, sharply down from 19% in April, reflecting a broader recovery across the sector.

The sub-indexes also showed strong performance. The new orders index climbed from 54.1 to 56.8, indicating continued improvement in business demand, while the production index rose from 53.4 to 54.3. Although the employment index remained below 50, it improved from 46.4 to 48.6, suggesting that business confidence is gradually recovering. FXTRADING believes that US manufacturing has entered a relatively stable recovery phase, with both demand and production improving simultaneously, continuing to support the overall resilience of the US economy.

RBA Warns About Long-Term Inflation Risks

RBA board member Harper recently delivered relatively hawkish remarks. He stated that the biggest concern at present is not merely short-term price increases, but the possibility that long-term inflation expectations could gradually become unanchored. Once markets begin to believe that high inflation will persist over the long term, policymakers may be forced to adopt more aggressive measures.

Harper pointed out that while Middle East tensions and higher energy prices are contributing factors, domestic price pressures in Australia had already begun rebuilding before fuel costs surged. Although the central bank cannot control international energy prices, it must prevent inflation from spreading further into wages and the services sector. He emphasized that if long-term inflation expectations show signs of becoming unanchored, the RBA may need to take strong action. FXTRADING believes that the RBA is now increasingly focused on managing long-term inflation expectations, and if price pressures continue spreading, Australias monetary policy stance could become even more hawkish.