Insights 
VT 
Eurostat released data showing that the Eurozone’s preliminary Consumer Price Index (CPI) for August increased by 2.1% year-on-year, slightly above the expected 2.0%. In comparison, the prior CPI was recorded at 2.0%.
The Core CPI, which excludes volatile items such as food and energy, matched forecasts with a 2.3% increase, down from the previous 2.4%. Services inflation, a persistent element, is recorded at 3.1%. These figures are crucial for the European Central Bank’s (ECB) upcoming policy meeting decisions.
ECB Meeting Predictions
With headline inflation ticking up to 2.1% but core inflation easing slightly to 2.3%, the data gives the European Central Bank little reason to change its current stance. This reinforces our view that the ECB will hold interest rates steady at its meeting next week. A stable policy path suggests a period of lower volatility in short-term interest rates.
Traders should consider strategies that benefit from this expected stability, such as selling volatility on near-term interest rate futures. Market pricing, reflected in €STR futures, already shows a low probability of any rate move before the end of 2025, and today’s numbers will cement that view. We have seen this play out over the summer, with implied volatility on three-month EURIBOR options declining by nearly 15% since July 2025.
For equity derivative traders, a steady ECB points towards range-bound markets for indices like the Euro Stoxx 50. With no immediate catalyst for a major breakout, selling premium through strategies like iron condors could be effective. The VSTOXX index, a measure of Euro Stoxx 50 volatility, has already compressed towards 14.5, reflecting this low-conviction environment.
Services Inflation Watch
The main risk to this outlook is the persistent services inflation, which remains high at 3.1%. Looking back at the stubborn inflation cycle of 2023-2024, we know that sticky services can force the central bank to delay any easing policy longer than the market expects. This component remains the one to watch most closely for any signs of re-acceleration.
Given this stubborn services number, positioning for aggressive rate cuts in early 2026 seems premature. A cautious approach would involve using calendar spreads in rate futures. This would capture the expected lack of movement in the coming weeks while maintaining exposure to a potential policy shift further down the line.
