The latest data from Eurostat shows that producer prices in the Eurozone rose by 0.8% in June 2025, matching expectations. This follows a 0.6% drop in May. The increase in June is mainly due to a 3.2% rise in energy prices. When energy is excluded, producer prices actually fell by 0.1%. Prices for intermediate goods declined by 0.2%, but there were small increases in capital goods (0.1%), durable consumer goods (0.1%), and non-durable consumer goods (0.2%).

Core Inflation Trends

While producer prices rose by 0.8%, the increase is solely due to the spike in energy costs. When we remove energy from the equation, core prices actually decreased by 0.1%. This indicates there isn’t much inflation pressure overall. This trend is consistent with the early estimate for July’s consumer inflation, which also reported a high overall number but lower core pressures across the region. This mixed data suggests the European Central Bank (ECB) should remain careful and avoid raising interest rates. We think the ECB will focus on the weaker economic signs, especially after the disappointing 0.1% GDP growth in the second quarter of 2025. As a result, instruments that depend on rising interest rates, like short-term EURIBOR futures, may not look appealing right now. For stock traders, the combination of high energy prices and weak demand could hurt corporate profits. A similar situation occurred in late 2024, leading to lower earnings for industrial and consumer companies. Traders might want to consider protective strategies, such as buying put options on indices like the Euro Stoxx 50, to guard against potential downturns.

Trading Implications

This situation is likely to weaken the euro, especially against the U.S. dollar. In contrast, recent U.S. data shows core inflation stubbornly holding at 3.6% and strong job numbers, which keep the Federal Reserve on a more aggressive path. This growing difference in policies suggests a strategy of shorting the EUR/USD pair in the coming weeks. The gap between headline and core inflation is creating uncertainty, leading to increased market volatility. Implied volatility for currency pairs like EUR/USD and major equity indices has already started to rise from the low points seen in May 2025. This environment may offer chances for options traders who can benefit from larger market swings. Create your live VT Markets account and start trading now.

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