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Societe Generale economists highlight that the latest energy shock has reignited inflationary pressures in the Eurozone, with headline inflation already reaching 3%. They anticipate indirect and second-round effects to push inflation toward 3.5% by early 2027. This projection is based on energy price volatility and potential cost-push factors affecting consumption and production. The analysis suggests that persistent inflation could delay the European Central Bank's (ECB) rate-cutting cycle, maintaining upward pressure on the euro.
For forex markets, this news reinforces the euro's resilience against the US dollar, especially if the ECB adopts a more hawkish stance. Traders should monitor ECB policy signals and energy price trends, as these will shape the EUR/USD trajectory. The delayed rate cuts could also impact cross-currency carry trades and inflation-linked bond yields.
Investors should watch for follow-up data on core inflation and energy market developments. If energy prices stabilize, the inflation trajectory might moderate. However, ongoing geopolitical tensions in energy-producing regions could prolong price volatility, keeping the euro underpinned by inflation-linked carry-trade flows.
