Today, Europe will release inflation data from Germany, France, Spain, and Italy. This information will wrap up the month’s financial activities and keep attention focused during the European trading session.

European Inflation Figures

The inflation numbers are expected to show that prices continue to rise in August. However, this is unlikely to change the European Central Bank’s current decision to pause rate adjustments for the summer. Market predictions indicate that policymakers probably won’t lower rates by the end of the year. Current money market trends suggest only about 9 basis points in rate cuts are expected before year-end. If nothing unexpected happens, it’s unlikely that this data will lead to big market movements. We are awaiting inflation data from Germany, France, and other important Eurozone countries to end August. The market expects the Eurozone’s headline CPI to be around 2.6%, a slight rise from July’s 2.5%, and still above the central bank’s target. This supports the belief that the European Central Bank will keep its deposit rate steady at 3.25% throughout the autumn. Since the ECB is likely to remain inactive, we don’t expect significant price fluctuations in the next few weeks unless there’s a major surprise in the data. This low volatility suggests that strategies like selling short-dated options on the Euro Stoxx 50 index to earn premium could be appealing. The market is calm, and the goal is to profit from this stability.

Interest Rate Market Sentiment

Interest rate markets reflect this cautious outlook, with futures now showing less than a 40% chance of a quarter-point rate cut by the end of 2025. This is a sharp contrast to expectations at the beginning of the year, when more cuts were anticipated. For traders, this means using interest rate swaps or futures to bet on European rates staying high for a longer period. Looking back, we remember the high volatility during the rate-hiking phase of 2022-2023, and this current calm is a noteworthy change. While the main approach is to bet on stability, it might be smart to buy some inexpensive out-of-the-money puts on European stocks. This strategy could serve as a low-cost protection against an unexpected economic decline that could prompt the ECB to change its position. Create your live VT Markets account and start trading now.

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