Insights 
VT 
Germany’s annual inflation, as reflected by the Consumer Price Index (CPI), decreased to 2.3% in October from 2.4% in September, based on the Federal Statistical Office’s report. The figure surpassed the anticipated 2.2%. On a monthly scale, the CPI increased by 0.3%.
The Harmonized Index of Consumer Prices (HICP), used by the European Central Bank, also recorded a 0.3% rise monthly and 2.3% rise yearly. The HICP serves to measure inflation across European Union countries.
Currency Movement
In the market, the EUR/USD was last seen dropping by 0.45% against the US dollar, trading at 1.1550 following the inflation data release. This showcases the currency movement after the report.
Germany’s inflation is cooling down but came in slightly hotter than we expected at 2.3%. While this is an improvement from the 2.4% we saw in September, the market was looking for a cleaner drop to 2.2%. This stickiness suggests the final push toward the central bank’s target is proving difficult.
This higher-than-expected figure complicates the outlook for the European Central Bank. We must now question the timing and pace of any potential interest rate cuts for 2026. The data supports the view that the ECB will need to hold rates steady for longer than previously anticipated.
Looking back, we’ve made progress from the near 11% inflation peaks we saw in late 2022, but recent Eurostat data shows services inflation remains a key problem, holding around 3.8% across the Eurozone. This is primarily driven by persistent wage growth, a factor the ECB has repeatedly flagged as a concern. This stubbornness in a core part of the economy suggests overall inflation will be slow to fall further.
Foreign Exchange and Interest Rate Markets
For foreign exchange traders, the euro’s drop to 1.1550 against the dollar is telling. The market seems more worried about sticky inflation hurting economic growth than it is about the ECB keeping rates high. We should consider buying EUR/USD put options to protect against further downside in the currency over the next several weeks.
In the interest rate markets, this is a clear signal to re-evaluate the path of future rates. We see an opportunity in selling Euribor futures contracts for the second half of 2026. This position would profit if, as this data suggests, the market is forced to price out some of its more optimistic rate cut expectations.
This outlook is also negative for German equities, as higher borrowing costs for longer will squeeze corporate profit margins. We saw the DAX index struggle significantly during the rate hiking cycle of 2022-2023 under similar conditions. Buying put options on the DAX could be a sensible hedge against a potential market decline.
