Some downside risks to euro zone yields and the euro in the month ahead

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The ECB is expected to pause its rate hike cycle at its September policy meeting.

Barring a sharp uptick in core inflation in August, we expect market participants to remain unconvinced that the ECB will raise rates again in September.

Eurozone interest rate markets are currently pricing in a rate hike of about 14 basis points for September, which means that one more rate hike is still more likely than no rate hike for now. Therefore, should the ECB decide to pause its rate hike cycle next month, there will still be some downside risks to euro zone yields and the euro in the month ahead.