ECB interest rate hike bets for this year may increase in the short term as immediate concerns that Greece may soon have to restructure its debt ease, but they may not reach new peaks if data continues to be weak.
Euribor futures continued to inch lower across the 2011-2012 strip on Wednesday, sending market-implied rate expectations higher on hopes that officials will agree terms on a fresh bailout deal for Greece.
An easing of immediate Greek debt concerns would increase the European Central Bank's flexibility to hike interest rates.
The December Euribor contract has risen 40 basis points since eurozone officials first mentioned the word "restructuring" in connection with Greek debt publicly in early May, to reach a peak of 98.2 last week.
It was quoted at 98.11 on Wednesday, and analysts say it could fall further going into the June 9 European Central Bank meeting, when President Jean Claude-Trichet is expected to signal a rate hike for July.
A string of weak data is weighing on rate expectations, holding back bets of a steepening of the money market curve.
Surveys showed factory growth eased in Europe and Asia in May and data showed US private payroll growth slowed sharply last month, far below expectations. US purchasing manufacturers index figures also disappointed.
The Markit Eurozone Manufacturing PMI for May slipped to 54.6 from 58.0 in April, its 20th month above the 50 mark that signifies growth but showing a sharp pull-back on fresh signs of decline in the currency bloc's debt-laden periphery.
Spanish manufacturing returned to a slump, while Italian and Irish factories saw a marked slowdown in growth. Supply-chain pressures dented the French and German PMIs, which had been hovering near all-time highs.
The July Eonia forward was last 1.22 percent, having fallen from above 1.30 percent in recent days.
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