Spain’s preliminary Consumer Price Index (CPI) for July rose by 2.7% compared to last year, slightly above the expected 2.6%. In June, the CPI recorded a 2.3% increase. The Harmonised Index of Consumer Prices (HICP) also matched the anticipated year-on-year rise of 2.7%, increasing from June’s 2.3%. Core annual inflation rose to 2.3%, up from 2.2% in June. This suggests that inflation is stabilizing just above the 2% benchmark. Such levels might affect the European Central Bank’s (ECB) decision regarding monetary easing.

Eurozone Inflation Concerns

The higher inflation rate in Spain indicates persistent price pressures across the Eurozone. This supports the ECB’s choice to pause further interest rate cuts. Consequently, we need to reassess expectations for imminent easing in the upcoming weeks. This Spanish report follows the Eurozone’s flash estimate for June 2025, which showed headline inflation at 2.6% and core inflation at 2.9%. These stubborn figures are causing market unease regarding the ECB’s next steps. Inflation remains consistently above the 2% target. In the rates market, we can expect short-term yields to rise. This signals the need to adjust positions in derivatives like EURIBOR futures to account for fewer significant rate cuts for the rest of 2025. The likelihood of a September rate cut from the ECB is rapidly decreasing.

Impact on Financial Markets

Sustained inflationary pressure may act as a headwind for equity indices like the Euro Stoxx 50. It may be wise to consider buying put options for downside protection, as the VSTOXX volatility index recently reached 15. The chance of a market pullback in the coming weeks has increased. The Euro might gain strength from this data, as a hawkish ECB typically supports the currency. Traders could consider buying near-term EUR/USD call options to take advantage of potential gains, which might push the pair back towards the 1.10 level seen earlier this year. Looking back, the ECB’s June 2025 rate cut seems to have been based on data that has since changed. The market had anticipated another cut before the year ends, but that view is now quickly being reassessed. This shift in sentiment presents opportunities. Create your live VT Markets account and start trading now.

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