Eurozone Inflation Ticks Up as Core Prices Soften

The Eurozone inflation rate rose to 3.3% year on year in August, matching market expectations. However, core inflation, which excludes volatile food and energy prices, eased to 2.4%, coming in below a consensus forecast of 2.5%. This deceleration in core inflation gives the European Central Bank (ECB) room to proceed with interest rate cuts at its upcoming September meeting.

The ECB is expected to take advantage of this trend and reduce borrowing costs, which could put downward pressure on Eurozone yields in the coming weeks. Historically, when core inflation misses expectations on the downside, Eurozone bond prices tend to rally over the subsequent two to three weeks.

Market analysts are recommending a long position on three-month Euribor futures, as traders price in a more aggressive rate-cut path. Buying call options on German 10-year Bund futures is also seen as an attractive way to profit from falling yields.