Eurozone’s final Consumer Price Index (CPI) for July has been confirmed at +2.0% year-on-year, matching preliminary estimates, according to Eurostat data released on August 20, 2025. This is the same as the previous month’s CPI rate of +2.0%. The core CPI, which excludes volatile items, remains at +2.4% year-on-year, unchanged from both the preliminary estimate and last month. These numbers support the European Central Bank’s (ECB) decision to keep its current policy through the summer.

Current Inflation Situation

The most recent inflation data confirms trends we’ve noticed for some time. Headline inflation has reached the ECB’s 2.0% target, but core inflation still remains at 2.4%. This means there’s little reason to expect a quick change in policy. It reinforces the idea that the ECB will likely maintain its key interest rate at 3.75% for the rest of the summer. For traders, this means shifting focus away from betting on immediate rate increases or cuts. There’s low confidence in predicting short-term market movements, as Euribor futures show a high chance of rates staying the same through the September meeting. The real opportunity lies in the growing tension between inflation and slowing economic growth. This tension is becoming clearer, especially after the recent ZEW Economic Sentiment figures for August 2025 showed a decline and preliminary Q2 GDP growth was revised down to only 0.1%. While the ECB remains concerned about persistent core inflation, the weakening growth outlook may lead them to consider easing policies later this year. This difference creates uncertainty, which is often a good environment for strategies based on volatility.

Market Opportunities

Given this landscape, we see potential in positions that could benefit from increased market movement, regardless of the direction. Buying options on indices like the Euro STOXX 50 or on German Bund futures could be a wise strategy in the coming weeks. Implied volatility appears relatively low, considering the potential for sharp market changes following the next significant economic data. Looking ahead to the fourth quarter, the market will aggressively try to predict when the first rate cut might happen. Currently, forward-looking instruments like overnight index swaps suggest about a 40% chance of a 25-basis point cut by December 2025. We expect this probability to change significantly with each new growth or inflation report. We can look back at late 2023 and early 2024 when the US Federal Reserve was also on pause. During that period, major data releases led to significant short-term volatility as traders attempted to anticipate the central bank’s next move. We expect a similar pattern to emerge in European markets as we move into autumn. Create your live VT Markets account and start trading now.

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