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France’s preliminary CPI rose by 0.9% year-on-year, while HICP increased by 0.8%, defying expectations. Services inflation has eased.
The French preliminary Consumer Price Index (CPI) for August increased by 0.9% compared to the same month last year. This growth is slightly lower than the expected 1.0%. In July, the CPI was at 1.0%.
The Harmonised Index of Consumer Prices (HICP) showed a 0.8% rise on an annual basis, falling short of the predicted 0.9% and down from the previous 0.9%. Month over month, consumer prices went up by 0.4%, marking the third month in a row of increases.
France’s final Q2 GDP stays at +0.3%, with positive contributions from consumption and inventory changes
In the second quarter, France’s GDP grew by 0.3%, in line with early forecasts. This update from INSEE shows an increase from the previous quarter’s growth of 0.1%.
The breakdown shows that consumption added 0.10% to GDP growth, while changes in inventory contributed a larger 0.52% to the economy.
Economic Performance Analysis
On the downside, net foreign trade decreased GDP growth by 0.27%. This analysis highlights the different factors affecting France’s economy during this quarter. The final GDP figure matches the initial reading, so there are no immediate shocks for the market. Yet, a closer look reveals some weakness in the second quarter’s growth. The economy’s reliance on inventory build-up raises concerns for the upcoming months. Weak consumer spending fits into the context of high-interest rates squeezing household finances. The European Central Bank’s recent statements on August 21, 2025, confirmed a strict ‘data-dependent’ approach, indicating that policies will stay tight. This means a quick rebound in consumer spending is unlikely. The sluggish situation for French consumers is part of a wider trend in the Eurozone. Eurostat’s retail sales data for July 2025 showed a 0.5% drop from the previous month, marking three months of declines. This suggests that the economy’s main supporting pillar is weakening.Positioning for Potential Downside
Growth based on inventory increases is often short-lived and can quickly reverse. We have seen this happen before, especially during the inventory cycles of 2022-2023, where initial accumulation led to a sudden drop that hurt manufacturing. A similar slowdown in Q3 or Q4 of 2025 seems increasingly likely. Given this scenario, we should consider strategies to prepare for potential declines in European stocks. Buying put options on the CAC 40 index could be a smart way to hedge against potential market drops. This approach helps protect against risks from an economic slowdown caused by unwinding inventory and weak demand. Create your live VT Markets account and start trading now.Early European trading sees major currencies stable with minimal fluctuations in dollar pairs
The dollar has dropped over the last two days, reversing earlier gains from earlier in the week. Initially, it rose after Fed Chair Powell made dovish remarks. However, recent trading has shifted back to selling, changing how the market feels about the dollar.
Attention is now on month-end activities as traders look forward to upcoming US labor market data next week. Major currencies aren’t moving much, with changes of around 0.1% or 15 pips. The final trading day could be quiet as everyone waits for the non-farm payrolls data.
Dollar Pair Movements
Movement in dollar pairs this week shows uncertainty, with minor changes in commodity currencies. Current performances for dollar pairs are: EUR/USD down 0.4%, USD/JPY up 0.1%, GBP/USD down 0.1%, USD/CHF up 0.1%, USD/CAD down 0.5%, AUD/USD up 0.7%, and NZD/USD up 0.5%. The dollar’s recent instability indicates how the market is struggling with what the Federal Reserve plans to do. After last week’s dovish signals from Jackson Hole, expectations for interest rate cuts have grown clearer. The CME FedWatch Tool now shows a 78% chance of a rate cut at the September meeting, making next week’s employment data very important. Traders should expect increased volatility when the US labor market report comes out. Signs of a slowdown are already evident. The latest JOLTS report from earlier this month indicates job openings have fallen to 8.7 million. If the non-farm payrolls number is lower than the expected 175,000, this could strengthen the argument for a rate cut and likely lower the dollar’s value.Strategies for Market Volatility
The current calm market, with the VIX index near a low of 14, is a good time to consider buying volatility. Derivative traders might want to buy straddles or strangles on major pairs like EUR/USD. These strategies aim to profit from big price changes in either direction, which could happen after the jobs data is released. Reflecting on past events, this situation is similar to the market dynamic in mid-2019. At that time, the Fed was shifting to lower rates, and a surprisingly weak jobs report accelerated that process, weakening the dollar. If something similar happens next week, it might finally provide the market with the clear direction it has been missing. The relative strength of commodity currencies, like the Australian and Canadian dollars, is also significant. This indicates that traders might already be preparing for a weaker US dollar by seeking better yields. If the US jobs data is disappointing, strategies favoring these currencies against the dollar could see notable profits. Create your live VT Markets account and start trading now.European equity futures see slight declines as Germany, France, and UK markets lag behind
Eurostoxx futures dropped by 0.1% in early European trading. The mood is calm as traders focus on month-end activities after a mixed performance the day before.
German DAX futures and French CAC 40 futures also fell by 0.1%. UK FTSE futures are stable and show no changes.
August Trading Environment
This week has not been great for European stocks as traders wrap up August trading. Despite the downturn, most countries saw positive monthly returns, except for France, which is facing political issues. U.S. futures are also cautious, with S&P 500 futures down by 0.1% after small gains yesterday. The slight drop in Eurostoxx and U.S. futures indicates that the market is waiting for August to end. Trading volumes are low, typical for late summer, which means that even small news can lead to bigger price changes. Traders should be careful with their positions now since the true market direction may become clearer in September. This week’s uncertainty is partly due to new economic data. The preliminary Eurozone inflation report for August 2025 was 2.4%, slightly above the expected 2.2%. This persistent inflation suggests that the European Central Bank may not rush to cut interest rates, dampening enthusiasm for the equity market for now. Recent comments from central bankers emphasize patience in policy, which affects overall sentiment. Implied volatility, shown by the VSTOXX index, is rising to about 16, even with a calm market. This signals that options traders are preparing for possible big moves in early September, making long volatility strategies like straddles appealing.Market Sentiment And Strategies
The weak performance of French stocks is a point of concern. Ongoing political debates about the upcoming autumn budget add challenges for the CAC 40 that Germany doesn’t face. Derivative traders might consider put options on the CAC 40 as protection or a bearish bet against this uncertainty. Historically, the upcoming period can be difficult for markets. Records from the 2010s and early 2020s show that September tends to be weak for stocks. This seasonal trend, along with current inflation worries, supports the idea of seeking protection, such as buying out-of-the-money puts on the Eurostoxx 50 index to guard against a potential downturn. Create your live VT Markets account and start trading now.German retail sales fell 1.5%, missing forecasts, with food sales down 1.8% month-on-month.
In July, retail sales in Germany dropped by 1.5% compared to the previous month, according to Destatis. This decline was greater than the expected decrease of 0.4%.
Decline In Retail Sectors
Sales in the food retail sector fell by 1.8% from June. The non-food retail sector also saw a drop, with sales down by 0.7% during the same timeframe. However, when looking at year-over-year data, retail sales rose by 1.9% compared to July of the previous year. This significant decline in German retail sales signals trouble for Europe’s largest economy. The steep drop in July suggests that consumers are having a tough time. This news may negatively affect economic forecasts for the remainder of the third quarter. We have also observed other troubling signs. The German manufacturing PMI for August 2025 fell to 48.7, indicating a contraction in this sector. The retail data confirms that the manufacturing weakness is now affecting the retail space. A widespread slowdown seems increasingly likely.Impact On Currency And Stocks
For currency traders, this news may weaken the Euro. With the economy slowing, the European Central Bank will struggle to keep interest rates high, especially after their aggressive hikes in 2023 to combat inflation. It might be wise to consider buying put options on the EUR/USD pair, expecting a downturn. This situation also signals trouble for German stocks, especially in the consumer discretionary sector. The DAX index may encounter challenges as growth expectations are lowered. Now could be a good time to hedge long positions by purchasing put options on DAX futures. Considering the prolonged economic stagnation that Germany faced in 2024, this data feels like a setback to the ongoing fragile recovery. In this context, German government bonds, or Bunds, are likely to see increased demand as a safe-haven asset. We can expect Bund yields to drop, resulting in higher prices. The unexpected nature of this data will likely lead to short-term market volatility. This might cause option premiums to rise in the coming days. A strategy of buying a straddle on the Euro Stoxx 50 Volatility Index (VSTOXX) could be a way to take advantage of this anticipated increase in market nervousness. Create your live VT Markets account and start trading now.Germany’s import price index decreased by 0.4% in July, with declines in several categories.
Germany’s import price index for July fell to -0.4%, missing the expected -0.3%. This is down from last month’s level of 0.0%, according to Destatis.
Excluding energy prices, import prices still dropped by 0.4% from the previous month. Every sector showed price decreases, with intermediate goods down 0.5%, capital goods down 0.2%, and durable consumer goods down 0.4%.
Deflationary Signal
July 2025’s lower-than-expected import prices indicate a strong deflationary trend for the German economy. It confirms that both global and domestic demand are weaker than anticipated. This raises concerns about a potential recession as we approach the end of the year. This information suggests that the European Central Bank (ECB) may shift towards a softer approach in upcoming meetings. We believe the cycle of rate hikes that dominated late 2023 and 2024 is over. The market is likely to start pricing in rate cuts for early 2026. Traders should keep an eye on derivatives tied to EURIBOR futures, as they will be affected by changes in ECB policy expectations. We see this as a sign of weakness for German stocks, making long positions on the DAX index riskier. Given that Germany’s Q2 2025 GDP growth was just 0.1%, we expect further downward revisions in earnings for major industrial exporters. Using protective put options on the DAX or taking short positions through futures may be a smart strategy.Negative Euro Outlook
The Euro’s outlook is also negative, as interest rate differences are likely to work against it, especially compared to the US dollar. We have already seen the EUR/USD pair drop below 1.05 in August 2025 due to weak economic data from the Eurozone. We predict this trend will continue, making short EUR/USD futures an appealing position. This situation is reminiscent of 2011-2012, when falling prices preceded a broader economic slowdown and led to ECB intervention. At that time, early signs in German import data indicated increased market volatility. We are preparing for a similar rise in volatility, potentially using options on the VSTOXX index to benefit from expected market fluctuations. Create your live VT Markets account and start trading now.Currency traders stay cautious as month-end dynamics affect market movements and sentiment.
The dollar has been a bit weak leading up to today’s London fix. Predicting what will happen next is tough due to month-end trading and market movements, which make it hard to see trends from earlier sessions.
Fed funds futures show an 84% chance of a 25 basis points rate cut in September and about 54 basis points by the end of the year. This reflects current sentiment ahead of the upcoming FOMC meeting. Meanwhile, US stocks are doing well, especially tech shares, even with Nvidia seeing a drop after its earnings report on Wednesday.
Dollar Drivers and Market Focus
As the week wraps up, there are few reasons affecting the dollar; month-end trading is taking the spotlight. We may get a clearer picture of market positions next week. Attention will soon shift to the US jobs report due on September 5. Barclays notes weak dollar selling signals this month-end, while Credit Agricole expects mild dollar selling toward the month-end fix. Right now, the US dollar is weak, but these unpredictable month-end trades make it tough to rely on current price movements. With an 84% probability of a rate cut in September, the market seems steady for now. Because of this, volatility is low, making it cheaper to buy options and prepare for surprises in next week’s important data.Implications for Stock Market and Strategy
Everyone is focused on the US jobs report coming out on Friday, September 5. Recent data points, like the Core PCE inflation for July at a cool 2.6%, suggest a slowdown. Predictions for the jobs number are around a modest 175,000. A much lower number could strengthen expectations for a rate cut and negatively impact the dollar, making bearish dollar options a smart choice. Despite the softer dollar, US stocks, especially in tech, are performing well because bad economic news is seen as positive for future interest rates. The VIX, which measures market fear, is around a low level of 14, indicating complacency. This situation is good for strategies that take advantage of premiums, like selling out-of-the-money puts on major indices, betting that the positive momentum will continue. We observed a similar trend back in summer 2019, when the market also anticipated Fed rate cuts amid slowing growth. The dollar fluctuated before weakening, while stocks rose on expectations of easier policies. With about 54 basis points of cuts expected by year-end, considering longer-dated call options on equity indices could be a way to prepare for a potential year-end rally. Create your live VT Markets account and start trading now.Today’s expected inflation data from German states shows a slight increase in headline figures.
German states will release their CPI data for August today. In July, Germany’s overall annual inflation remained steady at 2.0%, with core annual inflation at 2.7%. This consistent core inflation is concerning for the European Central Bank (ECB), which is not expected to cut rates in the third quarter.
On a positive note, the broader European economy is showing strength, reducing the urgency for rate cuts despite ongoing price pressures. Projections indicate a slight increase in Germany’s headline inflation rate to 2.1% for August. However, on a monthly basis, inflation is expected to stay flat compared to July.
Release Schedule for German CPI Data
The key focus is still the core inflation numbers. The CPI data from different German states, including North Rhine Westphalia, Hesse, Bavaria, Baden Wuerttemberg, and Saxony, will be released at 0800 GMT. Preliminary national figures will follow at 1200 GMT, with slightly varying release times. With the German CPI data for August 2025 coming out today, we should prepare for some market movement. The core inflation remains a significant issue, staying above the ECB’s 2% target even as overall figures have eased. This stickiness is why the ECB has kept its deposit facility rate at 3.50% for the last three quarters. The Eurozone economy has shown strong resilience, avoiding the recession many anticipated in early 2024 and achieving steady quarterly growth. For instance, Eurostat reported a 0.3% growth in the Euro area economy during the first quarter of 2025, allowing the central bank to concentrate on inflation. If core inflation comes in higher than expected today, it will reinforce the ECB’s “higher for longer” approach. For interest rate traders, a strong inflation report could signal that rate cuts will be delayed further, likely into the second quarter of 2026. This would suggest selling short-term interest rate futures that track EURIBOR, as market expectations are adjusted. Currently, futures markets indicate a 40% chance of a rate cut by December 2025, a likelihood that would drop with strong inflation data.Impact on Currency and Interest Rate Markets
In the currency markets, a surprisingly high German CPI number would likely boost the euro. The EUR/USD pair has stayed around the 1.0950 level this past month, and a hawkish hint from the ECB could push it above 1.1000. Traders might consider buying short-dated call options on the euro to take advantage of a potential spike. On the other hand, if core inflation drops significantly and unexpectedly, the opposite reaction would occur. This scenario would increase the chances of a rate cut before the end of 2025, making interest rate futures more appealing. In that case, the euro would likely weaken as yield differentials shift in favor of the US dollar. It’s important to remember the lessons from 2023 and 2024, when persistent services inflation delayed rate cuts. The ECB is very aware of this, making today’s German data crucial for their upcoming decisions. This situation suggests that buying volatility through options strategies like a straddle could be a smart way to trade this event, potentially profiting from significant price shifts in either direction. Create your live VT Markets account and start trading now.Inflation data will keep Europe’s markets engaged, with little expected effect on the ECB.
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.Asian FX shows mixed performance as Japan’s CPI exceeds Bank of Japan’s target for years.
Asian markets showed mixed results today. Some currencies strengthened slightly, while major ones like EUR/USD and GBP/USD saw small declines. Commodity currencies, including AUD, NZD, and CAD, gained modestly amid uneven stock performances in the region.
Federal Reserve Governor Christopher Waller reaffirmed his belief that rate cuts could start in September. Meanwhile, Japan’s August consumer price index (CPI) met expectations, remaining above the Bank of Japan’s 2% target for over three years, with little change in the USD/JPY exchange rate.
