Euro’s losses deepen after inflation data

Euro’s losses deepen after inflation data

Rising inflation is usually considered a precursor to tighter monetary policy. The ECB is wary that interest rate hikes might tip the economy into a recession, however, especially as the European Union's plans to cut its reliance on Russian energy could push inflation even higher.

"The dollar has also advanced today on back of higher oil prices and that is proving to be a bigger factor, and the risk of a recession is seen as greater in Europe than in the U.S.," said Stuart Cole, chief macro strategist at Equiti Capital.

Inflation in the 19 countries sharing the euro accelerated to 8.1% in May from 7.4% in April, beating expectations for 7.7% as price growth continued to broaden, indicating that it is no longer just energy pulling up the headline figure.

Against the dollar, the euro extended its drop to fall 0.6% to $1.0777 before trimming some losses. On a monthly basis, the single currency was up nearly 2%, its best monthly gain in a year.

Markets have steadily ratcheted higher their expectations of ECB rate hikes. Investors now expect borrowing costs to rise as much as 115 bps this year, compared to 110 bps last week.

"A substantial upward revision to the ECB's near-term