European markets are adjusting expectations as the European Central Bank (ECB) prepares for its upcoming interest rate decision, influenced by recent U.S. inflation data. The Euro Stoxx 600 index remained stable, while Germany's DAX experienced gains, reflecting investor anticipation.

In August, U.S. consumer prices rose 2.5% year-on-year, down from 2.9% in July, aligning with expectations. However, core inflation, excluding food and energy, increased by 0.3% from July, higher than the anticipated 0.2%, resulting in a 3.2% annual rise, matching forecasts. These figures have reduced the likelihood of a 0.5% rate cut by the Federal Reserve at its 17-18 September policy meeting.

The ECB is widely expected to implement its second 0.25% rate cut this year at the upcoming meeting. However, the bank is likely to adopt a cautious tone regarding future actions, warning of the potential for inflation to resurge, especially following the slight rise in U.S. core inflation.

Eurozone inflation fell to its lowest level in more than three years in August, according to official data. Consumer price rises slowed to 2.2% compared to the same month last year, down from 2.6% in July, leaving the figure just a whisker off the ECB's target.

The euro's recent rise against the USD has lost momentum in September, indicating that the Federal Reserve may be adopting a more hawkish stance than previously anticipated. This could result in a weaker euro against the dollar this month.

Investors are now closely monitoring the ECB's forthcoming policy meeting, where decisions on interest rates will be made in light of these evolving economic indicators.