Eurozone inflation figures for June came in below analysts' expectations, confirming an easing of price pressures across the bloc and the euro's recent weakness. The euro weakened against all G10 currencies as investors continued to lower expectations for a peak in the ECB's policy rate amid evidence that inflation is falling back towards the 2.0 per cent target.

Eurostat reported that headline HICP inflation rose 5.5 per cent in June, down from 6.1 per cent in May and below economists' consensus expectations of 5.6 per cent. However, the month-on-month figure rose slightly, from 0% to 0.3%, above consensus expectations of 0%. But it is the core measure - which strips out variables such as food and energy - that will be of most interest to policymakers, given that it is running at a 0.3 per cent monthly rate.

Td Securities said it was the lag in services inflation that meant an ECB rate hike in July was "almost a done deal and nothing today changes our view on an eventual rate hike in September".

However, despite the record service PMI data, the data did not give investors a reason to increase their bets on an increase in the European Central Bank's policy rate, which could explain some of the euro's weakness in late June.

Money market pricing suggests that markets expect the ECB to raise rates two more times in 2023, each by 25 basis points, with one of them almost certain to come in July, raising the possibility that the September meeting will skip a rate hike.

In either case, peak interest rates are within reach, as prices have failed to rise significantly for weeks and inflation data suggest it is slowing.

Most economists now expect the ECB's tightening campaign to be in its final stages, with the July rate hike likely to be followed by a pause. After August, however, if inflation remains high, the ECB could resume the rate hike process. Money markets expect deposit rates to peak at around 4% later this year.