European Inflation Takes a Bit of a Break
After a sprinkling of sub‑2% inflation numbers from the eurozone’s heavyweight nations, the overall consumer‑price index (CPI) dipped to just 1.8% in September.
On a month‑on‑month basis, prices actually fell by 0.1%. Although services inflation is still sticky at 4.0%, even that slowed down over the month.
ECB Doves Looking for a Friendly Take‑Off
Right now the ECB’s dovish camp has a solid case: it’s time to swing into action. They’re heading to the Governing Council meeting in a few weeks, and they’ll have to face a world of:
- Advanced disinflation
- A recovery that’s not looking very robust
- Consumer confidence at its nadir
Policy has been a bit too restrictive given the tough macro backdrop. A run of targeted rate cuts seems inevitable once disinflation is in its late stage.
Hawks Still Guarding the Gate
The skeptical side will latch onto the yearly services inflation, citing its stickiness to justify a pause. Yet the facts say the opposite: prices fell this month, and the clear signals point to cooling momentum—particularly the wage talks that will now be tied to a 2% inflation target.
Risks Balloon for the Euro‑Dollar Narrative
The bullish EUR/USD scenario has become messier in recent months. With the Fed and ECB’s implied rate paths now priced similarly, the earlier advantage that squeezed the dollar’s yields has crumbled. If either central bank is going to re‑price dovishly, it’s likely to be the ECB that takes the spotlight.
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