Analysis-For traders, September's ECB move is far from clear cut

investing.com:

By Yoruk Bahceli

(Reuters) — For the first time in over a year, traders are struggling to gauge whether the European Central Bank will raise interest rates at its next meeting, with the outlook blurred by still sticky inflation and a stuttering economy.

Data on Thursday showed euro zone inflation held at 5.3% in August rather than dropping. A core measure excluding volatile food and energy prices dropped more than expected, to 5.3%, but remained far above the ECB's 2% target.

Coming just a week after business activity numbers pointed to a darkening economic outlook, the data have added to a lack of clarity for investors who for the past year have confidently priced successive rises in euro zone interest rates.

On Thursday, money markets were pricing in around a 30% chance of a 25 basis point hike at the ECB's Sept. 14 meeting, down from as high as 60% last week.

Danske Bank chief analyst Piet Christiansen said traders' indecisiveness reflected «the battle between the growth and inflation outlooks».

Demonstrating the difficulty of calling the ECB's move, trader bets over the past week have repeatedly swung between expecting a pause and a hike.

Such uncertainty increases the scope for increased volatility for bond markets and the euro heading into the September meeting.

Latest inflation prints suggest price pressures are still troubling the bloc, but with business activity contracting sharply, signalling deeper economic pain ahead, further rate increases are no longer a done deal.

Indeed, it was last week's forward-looking PMI activity data that pushed investors to price in a pause.

«This balancing act is playing out right now,» Christiansen said, adding he still expects a 25 bps hike in September, given the ECB's