Insights 
VT 
Eurozone’s final Consumer Price Index (CPI) for July is confirmed at +2.0% year-on-year, aligning with preliminary estimates, according to Eurostat data released on 20 August 2025. This matches the prior month’s CPI rate of +2.0%.
The core CPI, which excludes volatile items, stands at +2.4% year-on-year, unchanged from both the preliminary estimate and the previous month. These figures reinforce the European Central Bank’s decision to maintain its current stance through the summer.
Inflation Status Quo
The latest inflation data confirms what we’ve been seeing for a while. With headline inflation hitting the European Central Bank’s 2.0% target, but core inflation remaining sticky at 2.4%, there is little reason for an immediate policy change. This reinforces the view that the ECB will hold its key interest rate steady at 3.75% through the rest of the summer.
For traders, this means the focus should shift away from betting on immediate rate hikes or cuts. We see low conviction in directional bets for the very short term, as Euribor futures already reflect a high probability of rates remaining unchanged through the September meeting. The real opportunity now lies in the growing tension between inflation and slowing economic growth.
This tension is becoming more apparent, especially after recent ZEW Economic Sentiment figures for August 2025 showed a dip, and preliminary Q2 GDP growth was revised down to just 0.1%. While the ECB is focused on that sticky core inflation, the weakening growth outlook puts pressure on them to consider easing policy later in the year. This divergence creates uncertainty, which is often an ideal environment for volatility-based strategies.
Market Opportunities
Therefore, we see value in positions that could benefit from an eventual pickup in market movement, regardless of the direction. Buying options on indices like the Euro STOXX 50 or on German Bund futures could be a sensible approach over the coming weeks. Implied volatility seems relatively low given the potential for a sharp market repricing on the back of the next piece of significant economic data.
Looking further ahead into the fourth quarter, the market will aggressively try to price the timing of the first rate cut. Forward-looking instruments, such as overnight index swaps, are currently pricing a roughly 40% chance of a 25-basis point cut by December 2025. We expect this probability to shift dramatically with every incoming growth or inflation report.
We can look back to the period in late 2023 and early 2024, when the US Federal Reserve was on a similar pause. During that time, every major data release caused significant short-term volatility as traders tried to front-run the central bank’s next move. We anticipate a similar pattern to emerge in European markets as we head into autumn.
