Nordea forecasts Eurozone headline inflation to stay above the European Central Bank\u2019s target until at least spring 2027. Recent readings excluding energy have been slightly weaker than the ECB\u2019s June projections, which the bank links in part to softer food price inflation. As a result, Nordea expects downward revisions to the ECB\u2019s 2026 and 2027 headline inflation forecasts, though it anticipates the changes will be modest.<\/p>\n
The bank sees core inflation tracking broadly in line with the June projections and therefore expects the core profile to be largely unchanged. On that basis, core inflation is projected to remain above 2% through the end of 2028. Nordea\u2019s view implies a policy backdrop that would keep the case for further ECB rate rises on the table.<\/p>\n
We are currently facing persistent inflation across the Eurozone that is expected to keep headline inflation above the ECB\u2019s 2% target until spring 2027. With core inflation projected to stay above 2% through 2028, the central bank has a strong case to keep interest rates high or even hike them further. Derivative traders should prepare for a longer period of tight monetary policy than the market currently expects.<\/p>\n
We suggest shorting December 2026 and mid-2027 Euribor futures to profit from interest rates staying higher for longer. This trade is supported by historical data; for instance, when Eurozone services inflation sat stubbornly at 4.2% in late 2024, it showed just how difficult it is to cool core rising prices. If the market is forced to price out expected rate cuts, these futures contracts will drop in value, yielding high returns for short sellers.<\/p>\n
In the currency markets, we favor buying call options on the Euro against the US Dollar (EUR\/USD). A hawkish ECB contrasted with a loosening Federal Reserve should push the Euro upward in the coming weeks. We can look back to August 2024 when the Euro climbed to a yearly high of 1.12 USD on similar policy differences, proving how sensitive the currency is to interest rate yield gaps.<\/p>\n
We also recommend buying put options on the Euro Stoxx 50 index to protect equity portfolios from upcoming volatility. Sticky core inflation and prolonged high interest rates will pressure corporate earnings and compress valuation multiples. Buying these puts while volatility indexes remain low provides a cheap insurance policy against a sharp market downturn.<\/p>\n\n\n\n