Yesterday, Germany recorded its highest inflation in nearly three years, while France posted its strongest reading in over two years. In Spain, price growth accelerated to 5%, the highest since 2023, and Italy's figures also surprised to the upside. Fuel remains the primary driver, and energy-related pressure could lift euro-area inflation toward about 4% by year-end.

A survey of economists points to a 3.7% increase for the eurozone; final figures are due tomorrow. ECB attention now focuses on core inflation. In Germany, core inflation remains at 2.4%, with no sign of acceleration. The key question is whether the energy shock will spill over into core prices — so far, there is little evidence it has.

Bank of Spain Governor Jose Luis Escriva recently noted that there are no second-round effects visible yet through labor-cost growth. If Friday's data shows an acceleration in core inflation, the case for an October hike will strengthen. If not, the pause camp gains ground, and those who have already priced in aggressive tightening will lose. Against this backdrop, the euro continued to lose ground versus the US dollar yesterday.

ECB President Christine Lagarde's rhetoric remains measured. "Interest rates do not move in lockstep with the price of energy," she said in a recent speech, adding that a noticeable rise in long-term yields will slow growth and reduce pass-through more than the September projection assumed. In that sense, the bond sell-off is doing some of the Fed's tightening work for the regulator by tightening financing conditions. Borrowers and highly indebted governments lose, while those at the ECB who would prefer not to hike gain cover. Notably, the central bank, which has already raised interest rates twice since the US–Iran conflict began, continues to stress there is no direct one-to-one link between policy rates and energy prices.

The third point is price formation in the market. The odds of a 25-bp hike on October 29 are roughly one in three, yet markets still price about 90 bps of tightening by next autumn. Economists generally expect a pause in October and a final hike in December, mirroring the Fed's path. If the October pause holds, attention will shift to December expectations. If the ECB hikes in October, short-dated bonds would take another hit.

For the euro, this implies limited upside in the near term. An October pause and falling yields reduce the currency's rate support. Without a Friday acceleration in core inflation, a sustained move higher looks unlikely.

The EUR/USD technical analysis shows that buyers should consider how to capture 1.1346. Only that would open a test of 1.1379. From there, a move to 1.1410 is possible, though achieving that without support from major players will be difficult. On the downside, expect significant buying only around 1.1312. If bids are absent there, it would be prudent to wait for a decline to a new low at 1.1284 or to open long positions from 1.1249.