Higher tariffs, a stronger euro, and increased competition are impacting economic growth. Government spending should support investment. Recent surveys show growth in both manufacturing and services. This growth reflects the strong domestic demand. Economic risks are more balanced now, compared to the previous focus on negative factors. The outlook for inflation is uncertain, with unclear risks ahead. A stronger euro could lower inflation more than expected. The disinflation phase has ended, and the economy remains stable. Inflation is aligned with targets, and the domestic market is resilient. A unanimous decision has reduced trade uncertainty. There’s an understanding that small deviations from targets won’t prompt immediate action. Overall, the economic environment remains favorable despite external pressures. The European Central Bank (ECB) has stated that the period of falling inflation is over and the economy is robust. With balanced growth risks, the market reacted quickly, causing the euro to rise against the dollar. This suggests the euro’s value is likely to increase, as the central bank is content with the current inflation levels. In light of this shift, we should think about buying near-term call options on the euro. The ECB has indicated that a stronger euro could help maintain low inflation, essentially encouraging further currency appreciation. A move towards 1.1100 in EUR/USD seems feasible as the market adjusts its expectations about how long the ECB will hold interest rates steady. On interest rates, the message is clear: policy will remain stable since minor changes in inflation targets won’t trigger action. This suggests the market may have overly predicted rate cuts for late 2025 or early 2026. We may express this view by selling December 2025 Euribor futures, betting that short-term interest rates won’t drop as anticipated. This view is backed by recent data, with August 2025 Eurozone inflation steady at 2.1%. The latest flash PMI survey for September shows continued growth at 51.2. These figures reinforce the central bank’s confidence in its inflation targets and the strength of domestic demand. The unanimous decision strengthens this patient approach. We should remember the lessons from the 2022-2023 interest rate hikes, where the market underestimated the ECB’s determination. Current communications suggest a similar approach, where the bank will tolerate stable rather than booming economic conditions without hurrying to ease policy. Thus, preparing for an extended period of higher rates is wise. For equity index traders, a stronger euro poses challenges for large exporters in the region, which may limit gains for benchmarks like the German DAX. We could hedge long equity exposure by buying puts on the Euro Stoxx 50 index. This would safeguard against potential declines in corporate earnings due to the strength of the euro.

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