Euro zone yields hit multi-year highs as inflation data cements September rate expectations

In Europe, data showed inflation in the euro zone accelerated to 3.3% in August from 2.9% in July, driven almost entirely by higher energy costs as crude oil and natural gas prices both rose and refiners bumped up their margins.

Underlying price pressures remained modest, however, offering some reassurance to policymakers that the energy price surge is not yet setting off the kind of second-round effects that could perpetuate rapid inflation and force the ECB into more aggressive action.

"For the European Central Bank, the jump in the headline inflation rate makes a September hike easier to sell," Bert Colijn, chief economist for the Netherlands at ING, said in a note.

"But the stubbornly benign core inflation rate should make for an interesting debate about a possible subsequent hike into restrictive territory."