The euro gained modestly after Eurostat’s flash estimate showed eurozone inflation easing to 2.1% in October, edging closer to the European Central Bank’s target. With growth still soft and policy transmission ongoing, traders expect the ECB to stay patient even as markets toy with further 2026 easing scenarios.
Key Highlights
- Euro area HICP flash at 2.1% (Oct), down from 2.2% in September.
- ECB calendar confirms the data timeline, with full October release mid-November; policy remains data-dependent.
- Cut odds marked down vs. mid-year, as some banks walk back 2025 cut calls amid tariffs, growth and inflation dynamics.
Inflation Nears Target; Energy and Core in Focus
Eurostat’s flash print put headline HICP at 2.1% YoY for October, continuing the glide toward the ECB’s 2% goal. The detail will matter when the full release lands later this month, especially core (ex-food and energy) and services inflation—both key to gauging persistence. For currency markets, easing inflation without signaling a hard landing keeps EUR/USD supported on dips, particularly if US data also soften.
ECB Patience, Transmission Still at Work
The ECB’s schedule confirms the flash/full HICP cadence into mid-November and early December. Policymakers have argued that prior rate cuts are still transmitting to financing conditions, while bank lending remains subdued. That argues for patience: avoid over-easing now, assess the lagged impact, and recalibrate in early 2026 if the data warrant. For FX, a patient ECB paired with a gradually easing Fed could compress transatlantic rate spreads and support a gentle EUR/USD recovery into year-end.
Market Pricing Cools the Easing Hype
Summer markets flirted with aggressive ECB easing paths; since then, a mix of better-anchored inflation and shifting macro risks has tempered those bets. Notably, some banks withdrew 2025 cut forecasts, pushing potential adjustments into 2026 depending on growth and external shocks. That repricing helped the euro hold ranges even as European growth lagged, with traders cherry-picking data for signs the bloc can skirt a deeper slowdown.
What to Watch Next
- Final October HICP (mid-Nov) for confirmation of the flash and a read on core.
- ECB speakers for hints on tolerance to disinflation overshoot vs. downside growth risks.
- US payrolls and CPI for the cross-rate impulse into EUR/USD.
Bottom Line: With HICP at 2.1%, the euro gets breathing room as the ECB waits for transmission to do the heavy lifting. The near-term bias is range-positive for EUR if US data soften; a hotter US labor/wage print could cap rebounds until December data bring fresh clarity.