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The recent Irish inflation figure for July, which came in exactly as forecast at 0.2%, confirms a trend of predictable price movements. This steadiness reduces the chance of any surprise policy shifts from the European Central Bank in the near term. We should, therefore, position ourselves for a period of lower-than-average market volatility.
This stability is reflected across the bloc, with the latest Eurostat flash estimate for July 2025 showing headline inflation for the Euro area holding at 2.3%. With the ECB’s key deposit rate at 3.0%, this gives the central bank room to wait and see. Consequently, we see the probability of a rate change at the September meeting as very low.
Volatility In Financial Markets
Given this outlook, we believe that implied volatility may be overpriced in some markets. The EURO STOXX 50 Volatility Index (VSTOXX) is currently trading near 15.5, which seems high for such a predictable macroeconomic environment. We should consider strategies that involve selling volatility on major European indices.
Looking back from our current perspective in 2025, this calmness is a stark contrast to the volatile period of 2022-2023. Back then, unexpected inflation data regularly caused sharp market repricing and forced aggressive central bank tightening. The current environment is fundamentally different, rewarding patience over speculative directional bets.
For interest rate traders, this suggests that the front end of the yield curve will remain anchored. We should avoid positioning for significant shifts in short-term Euribor futures in the coming weeks. Range-trading strategies are likely to be more effective than breakout trades.
In currency markets, the euro’s stability could contrast with other currencies where central bank paths are less certain. For instance, last week’s US jobs report came in slightly hotter than expected, creating some renewed uncertainty for the Federal Reserve. This may create relative value opportunities in pairs like EUR/USD, where we expect less volatility to originate from the euro side.
