Euro inflation below 2%, what’s next?

This week has been marked by a cocktail of rising geopolitical tensions and positive macroeconomic surprises, leading to high volatility on the financial markets. In Europe, inflation surprised on the downside, falling back below the 2% target for the first time since 2021, prompting us to revise our forecasts in favour of two further rate cuts by the ECB between now and the end of the year, with one in October. In the United States, the resilience of the economy was illustrated by an increase in job creation in the private sector and the strength of the services sector, reinforcing the soft-landing scenario. On the markets, a marked return to risk-off sentiment dominated the week, with equities declining overall under the impact of geopolitical tensions, while the dollar appreciated significantly. That said, this cautious sentiment failed to benefit the bond markets given the strong rebound in oil prices.