Final data from ISTAT shows that Italy’s Harmonised Index of Consumer Prices (HICP) rose by 1.7% in July compared to last year. This is in line with preliminary figures and indicates a slight drop from June’s 1.8% increase.

Stable Inflation Rates

The Consumer Price Index (CPI) also recorded a 1.7% year-on-year increase, matching its initial reading. These results align with earlier predictions and show that inflation rates are stable. The final figures for July confirm a trend of gradual cooling. This suggests that the European Central Bank will likely not feel the need to make any changes to its policies, and markets should consider this information routine. This Italian data fits well with the overall Eurozone situation. The latest flash estimate for Eurozone HICP in July 2025 stands at 2.2%. While this is still above the ECB’s target, it’s a significant drop from the peaks we experienced in 2022 and 2023. The slow process of reducing inflation is exactly why the central bank is remaining cautious. For interest rate derivatives, this stability hints at consistent behavior in the short-term market. We shouldn’t anticipate major changes in short-term ESTR swaps or Euribor futures before the ECB’s September meeting. The most likely scenario is for these instruments to stay within their recent ranges, as expectations for rate cuts in the latter half of 2025 have already been adjusted.

Consistent Policy Outlook

This consistent policy outlook is likely to minimize market volatility. The VSTOXX index, which measures volatility for Euro Stoxx 50 options, has been steadily declining and recently reached levels not seen since mid-2024. In this environment, strategies that benefit from low volatility, like selling options, can be advantageous, but caution is still advised. The weak economic backdrop supports the idea that the ECB will remain inactive. Recent data indicates that Eurozone GDP grew only 0.2% in the second quarter of 2025, limiting the ECB’s ability to act aggressively, even if inflation remains slightly elevated. The central bank is trying to balance the fight against inflation with the need to support a fragile economy. Reflecting on previous trends, this period resembles the aftermath of the 2012 sovereign debt crisis, during which policy remained quite stable for an extended time. At that time, attempting to chase large directional moves proved to be unsuccessful. For the upcoming weeks, the focus should be on range-trading strategies and capitalizing on a calm market. Create your live VT Markets account and start trading now.

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