JP Morgan has changed its forecast for the European Central Bank’s (ECB) interest rate moves. The bank now expects the next rate cut to happen in September instead of the previously predicted July. The ECB’s next policy meeting is on July 24, 2025, and it could have an impact on future economic decisions.

Changing Economic Signals

The shift from July to September indicates a shift in how economic indicators have been viewed recently. Early predictions suggested a quicker rate reduction, but new data hasn’t given central bankers the confidence to act fast. For example, inflation rates are still higher than desired, and wage pressures in some eurozone countries are keeping prices steady. Additionally, unemployment remains low, reducing the urgency for immediate policy changes. Differing opinions on whether current inflation levels will last have led strategists to adjust their forecasts. Policymakers seem to prefer taking their time, wanting more data before deciding on easing financial conditions that could spark unwanted inflation. They seem to favor confirming trends over relying on temporary relief signs. For those involved in derivatives, this delay alters how we plan in the near and mid-term. Expectations for rate cuts this summer need to be toned down, and preparing for the September meeting is now more important. Volatility in interest rate futures and options may rise as market participants update their strategies. The period from now until late September will be crucial, with increased market sensitivity to small changes in CPI and policy discussions.

Market Reactions

Lagarde and her team likely won’t diverge much from the consensus, but any slight changes in their tone—like a more cautious stance or hints at future guidance—could lead to big reactions in interest rates and foreign exchange markets. Currently, monetary conditions are already tight compared to historical standards, and without a clear direction, it’s challenging to manage duration confidently. We must be more precise with timing and exposure. While the expected easing cycle is still in place, its pace is now in doubt. Strategies involving flatteners or steeper curve plays may need adjustments; those looking to buy short-term volatility should rethink their strike selections. Strategies based on a July cut in short-dated contracts should adapt as trading volume shifts toward later dates. Ultimately, movements in the markets this summer will depend more on concrete data releases than statements from policymakers. Pricing models should move from prediction-based to response-based. With fewer assumptions and more control over scenarios, we shouldn’t expect the markets to remain quiet until the ECB meets in September. Create your live VT Markets account and start trading now.

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