French inflation surprises on the downside
The recent inflation data from France indicates a bearish sentiment for the euro, with year-on-year inflation declining to 1.8% in June from 2.4% in May, primarily due to falling energy prices. Per the full note from ing-think, this unexpected decline can be interpreted as dovish for the European Central Bank (ECB) as inflationary pressures appear muted, suggesting limited scope for aggressive monetary policy tightening. Considering that consensus expectations had pegged June inflation closer to 2%, the current data could shift market views on the ECB's interest rate strategy, particularly with inflation expected to rebound gradually but remaining low relative to historical levels. Without any upcoming significant economic data that could pivot expectations, traders should closely monitor how these developments affect euro positioning against major currencies.
What the desk is arguing
The unexpected drop in French inflation signals a potential easing of ECB monetary policy, given that inflation fell to 1.8% in June, significantly below the forecast of 2%. This decline is largely attributed to decreased energy prices, with services and food inflation also reflecting softer pressures. Per the full note from ing-think, the harmony index, which the ECB monitors closely, also dipped to 2.0%, reinforcing the dovish narrative for the central bank.
Moreover, the anticipated rebound in inflation, driven by factors like minimum wage increases and seasonal sales, will likely be limited. The desk interprets this as continued low inflation risk, which diminishes concerns of an inflationary spiral that could typically necessitate aggressive rate hikes from the ECB.
Where it sits in our coverage
The current consensus target for the EUR/USD is 1.075, with expectations ranging from 1.04 to 1.12. Specific firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which forecasts a strengthening of the euro around the middle of the range, while bofa sits at the lower end, suggesting bearish sentiment could prevail if inflationary pressures in Europe continue to diminish.
How other firms see it
Firms such as jpmorgan and deutsche bank appear to share a bullish sentiment toward the euro, given the pronounced low inflation and its implications for ECB policy. In contrast, bofa expresses a more cautious outlook, forecasting a weaker euro amid persistent concerns over inflation in the Eurozone.
Traders should be mindful of the EUR/USD fluctuations, which may reflect broader ECB policy shifts and market sentiment as data continues to emerge regarding inflation and economic activity in Europe.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01French inflation fell to 1.8% in June, below the expected 2%.
- 02This signals a potentially dovish stance from the ECB.
- 03Inflation is expected to rebound but remains broadly controlled.
- 04Energy prices heavily influenced the current inflation figures.
Market implications
Watch for potential shifts in EUR/USD around the 1.075 level as traders digest the implications of softer inflation data. Given the current economic landscape, positioning ahead of any significant ECB commentary will be critical.
Risks to this view
A significant shift in inflation dynamics, such as unforeseen increases in energy prices or a stronger-than-expected rebound in consumer demand, could challenge this outlook and lead to a reversal in euro strength.
Articles French inflation surprises on the downside 08:44 France Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Inflation in France came in lower than expected in June. It is expected to pick up again in the coming months, but only to a limited extent Charlotte de Montpellier French inflation was weaker-than-expected in June due to the drop in oil prices Following the decline in oil prices, inflationary pressures in France eased in June, with consumer prices rising by 1.8% year-on-year, down from 2.4% in May, according to Insee data. This decline is mainly driven by energy prices, which increased by 11.2% in June compared with 16.6% in May.
Services inflation also slowed (+1.8% vs. +2.1%), as did food prices (+0.9% vs. +1.1% in May). In addition, the timing of the summer sales, which unlike last year, started as early as June, further amplified the decline in manufactured goods prices. These fell by 0.9% YoY in June, after a drop of 0.6% in May.
The harmonised index, closely watched by the European Central Bank, also declined to 2.0%, from 2.8% in May. Overall, these inflation figures are weaker than expected by the consensus and can be interpreted as a “dovish” signal for the ECB. In its economic outlook published on 16 June, Insee had still expected domestic inflation to reach 2% in June.
Both food and services inflation pressures turned out to be weaker than anticipated. The data therefore confirms that the risk of an inflationary spiral remains extremely low in France and significantly more limited than in neighbouring countries. Nevertheless, inflation is expected to rise again in the coming months.
On the one hand, the June figure is artificially pushed down by the timing of the sales. On the other hand, several factors are likely to contribute to a rebound. The increase in the minimum wage, indexed to inflation, should again support services prices, which could approach 2.5% by the end of the year.
Transport and telecommunications services prices, in the context of reduced competition, are also expected to rise. Food inflation should gradually increase, as higher energy costs typically take several months to feed through to food prices. Energy inflation is also expected to remain clearly positive for the rest of the year.
However, the expected increase in inflation in the coming months should remain limited, given the current weakness in domestic demand in France, low consumer confidence, and the downward revision of firms’ price expectations in surveys. On average in 2026, French inflation is expected to remain below that of the eurozone and to range between 2% and 2.5%, after averaging 0.9% in 2025. Inflation France Eurozone Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Charlotte de Montpellier Senior Economist, France and Switzerland Charlotte de Montpellier is a Senior Economist in ING Belgium covering France and Switzerland. She joined us in February 2018.
Prior to this, she worked as a research and teaching assistant at…
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