The recent increase in US tariffs is not likely to raise inflation levels. Inflation is currently under control, which requires clear communication about future monetary policies. In an unpredictable environment, flexible and evidence-based strategies are essential. **The Risks to Economic Growth** Economic growth faces several downside risks. The rising Euro also has a disinflationary effect. Policymakers are exploring options for future interest rate cuts. Given these factors, we believe the European Central Bank’s recent decision to cut rates by 25 basis points in June is likely not a one-time event. Markets expect at least one more rate cut by the end of the year, a view supported by Monsieur Villeroy’s dovish comments. Therefore, it’s wise to prepare for lower interest rates by considering moves like shorting short-term interest rate futures. The mention of the Euro’s disinflationary effect is especially relevant for currency traders. Although Eurozone inflation rose to 2.6% in May, concerns about growth risks are paramount for policymakers. This suggests a widening gap in policies compared to the US Federal Reserve, making a case for buying put options on the EUR/USD, as the interest rate difference favors the dollar. This monetary policy approach should benefit European stocks. The Euro Stoxx 50 index has already gained over 8% this year, and the expected further easing makes equities more appealing than bonds. We see value in buying call options on broad European indices to take advantage of this potential growth. **Volatility and Market Opportunities** The focus on “agile pragmatism” indicates that volatility might increase around future data releases, especially inflation reports. Historically, during the easing cycle from 2011 to 2014, the central bank took incremental actions, leading to periods of market uncertainty between meetings. As a result, utilizing options to manage risk or employing strategies like iron condors on European assets could be beneficial in the weeks ahead. Create your live VT Markets account and start trading now.

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