Eurozone Inflation, French Bond Market Shape Policy Path

[Eurozone Inflation, French Bond Market Shape Policy Path]

(1) ING notes that today's Eurozone data is expected to confirm a year-on-year CPI increase of 3.8% for September, notably above the European Central Bank's 2% target.

(2) The market is still digesting the hawkish inflation projections from the ECB's September press conference, a key driver behind expectations of nearly 75 basis points of further tightening by the central bank.

(3) However, the institution's team expects only one more rate hike from the ECB, with the French bond market's trajectory largely determining whether further tightening is needed thereafter.

(4) EUR/USD has been supported this week by volatility in U.S. AI stocks and may now enter a period of decent consolidation.

(5) The institution believes this move could push EUR/USD toward the 1.1340 to 1.1350 area.

(6) But if U.S. equities see further pullbacks, don't expect EUR/USD to be the biggest winner.

(7) The institution suggests USD/CHF downside would take a leading role in that scenario.

(8) Going forward, watch Eurozone final inflation figures, French bond yield spread changes, and ECB officials' remarks for guidance on rate hike expectations.