Euro slides as French inflation data bolsters ECB pause case

The euro drifted lower on Friday as final French inflation data for June confirmed a sharp deceleration, reinforcing expectations that the European Central Bank will hold rates steady at its July 22 meeting. EUR/USD eased to around 1.143, according to ECB reference rates, while the single currency hovered near one-year lows against the British pound.

Disinflation Takes Hold in France

INSEE's final reading confirmed that France's EU-harmonized consumer price index rose just 2.0% year-on-year in June, down sharply from 2.8% in May. On a monthly basis, the harmonized measure fell 0.3%, marking the first decline in five months. The national CPI measure showed annual inflation easing to 1.8% from 2.4%, well below market expectations of 2.1%.forexfactory+2

The drop was driven largely by a reversal in energy prices, particularly petroleum products, which had surged earlier in the year amid tensions related to the Iran conflict. The data added to a broader disinflation narrative that has gathered pace across the eurozone since mid-year.tradingeconomics+1

ECB Pause All But Assured

The soft inflation print arrives as ECB policymakers have already signaled a preference to hold rates at the bank's next meeting on July 22. After raising rates by 25 basis points in June — the first hike in nearly three years — two sources familiar with Governing Council discussions told Reuters that a pause was the most likely outcome, provided energy prices remain stable.reuters+1

The ECB's current deposit rate stands at 2.25% following the June hike, with the main refinancing rate at 2.40%. Markets are pricing in roughly 35 basis points of additional tightening by year-end, but the June inflation data has pushed back expectations for the timing of the next move.reuters+2

Sterling Dominates the Cross

The euro's weakness has been most pronounced against the pound. EUR/GBP fell to around 0.8598 at the end of June, its lowest level since July 2025, after the soft eurozone inflation readings reduced expectations for further rate hikes. Sterling has broken above the 1.16 and 1.17 levels at the interbank rate in early July, reversing a year-long range-bound trend against the euro.mitrade+1

The divergence reflects contrasting monetary policy paths, with the Bank of England maintaining a more hawkish stance relative to an ECB now expected to pause after a single hike.