Belgium's Inflation Surge Fuels Bets on Eurozone Rates Staying Higher

Belgium's inflation rate jumped in July, with consumer prices rising by 0.63% month-on-month, a significant increase from June's 0.3%. This sharp acceleration suggests that underlying inflationary pressures in the Eurozone remain stubborn.

The sudden spike in Belgian consumer prices has led to bets on the European Central Bank keeping interest rates higher for longer. Derivative traders are now adjusting their expectations, with some predicting a hawkish repricing of yields.

We recommend shorting short-term Eurozone debt, particularly two-year German Schatz futures, as yields are likely to rise. We also see an opportunity to buy Euro call options (EUR/USD) due to the strengthening currency and potential capital inflow into Europe.