According to a Reuters poll, the European Central Bank (ECB) is expected to raise its key interest rates by 25 basis points on June 15 and again in July, but then pause for the remainder of the year due to persistent inflation.

The ECB's rate hikes have slowed down recently, with the last increase being 25 basis points in May. ECB President Christine Lagarde stated that it is too early to determine a peak in core inflation and reiterated the need for further rate increases.

The eurozone economy experienced a technical recession in the first quarter of 2023, with a contraction of 0.1%. This was due to factors such as high energy and food prices and a decrease in post-pandemic spending. The recession was expected to occur later in the previous year but was initially believed to have been avoided. Despite the economic downturn, employment growth increased, with all countries except Greece, Lithuania, and Slovakia showing quarterly growth.

Retail sales in the eurozone remained unchanged in April, with consumers spending less on food and car fuel but increasing purchases of other products, particularly online. Consumption has been weak due to falling real incomes and increased spending on energy and debt repayments. Households have also been saving more due to higher interest rates and economic uncertainty.

A survey conducted by the European Central Bank revealed that eurozone consumers have lowered their inflation expectations, providing some relief to policymakers. However, underlying price growth is expected to remain stubborn, with inflation not projected to slow back to the 2% target until 2025.

Eurozone inflation is currently at 6.1%, down from its peak of 10.6% in October last year. The eurozone economy is expected to rebound in the current quarter. The poll indicates that the eurozone's growth is projected to be 0.2% per quarter for the rest of the year.

The U.S. Federal Reserve, on the other hand, is anticipated to keep interest rates unchanged at its June meeting and throughout the year, while closely monitoring the U.S. inflation reading.

Recent economic data in the U.S. has shown mixed results, with inflation moderating but remaining above the central bank's target. The Fed is also observing the impact of banking turmoil on the economy and has suggested that tighter lending standards could help control inflation without excessive monetary tightening.

However, a minority of experts foresee at least one more rate hike, possibly in July, which could influence the ECB to raise rates as well in order to maintain the strength of the euro.

The Fed will have the latest U.S. inflation report before starting its meeting, with expectations of a moderate increase in consumer prices. Additionally, the economic calendar includes data on producer price inflation, retail sales figures, and the weekly report on initial jobless claims. As a result, the euro may be stronger than the US dollar in this period, while the overall uptrend may remain limited as the return remains low.