ECB executive board member Isabel Schnabel says that the chances of another rate cut are very low. There’s no concern about inflation falling too far, indicating that current policies are likely to stay the same. Schnabel believes fears about the euro’s strength affecting prices are overstated. She emphasizes that the economy is strong and growth is balanced, suggesting that existing policies are in a good place.

Pause In Rate Cuts

The European Central Bank plans to pause rate cuts this summer. Traders estimate there is about a 97% chance of no rate cut in July, with only a 38% chance for September. Schnabel’s comments show that the ECB is not in a hurry to cut rates. They expect inflation to stay close to target, which reduces their need to act anytime soon. The Bank feels the current economic conditions don’t require additional monetary easing right now. They prefer to observe rather than react. When Schnabel downplays the impact of euro strength on inflation, she addresses worries that a stronger euro would reduce the cost of imports and lower prices. Her views suggest the Bank believes any effects from the exchange rate are manageable and do not threaten their inflation goals. They are confident in the economic recovery, viewing it as stable—not overly strong but not underperforming either. This cautious stance is typical for central banks.

Traders Positioning

Traders are already reflecting this cautious tone in their positions. With strong indications of no changes in July and low expectations for September, there isn’t much motivation to bet on cuts in the near future. If too many traders expect a rate cut, they might be disappointed, particularly affecting shorter-dated contracts. Given this situation, now is not the time to rely on expectations for rate cuts. The Bank, through Schnabel’s influence, has indicated that the threshold for a cut is high—this needs to be taken seriously. For now, emphasis should be on monitoring economic data rather than speculating on rate changes. This tone suggests a cautious approach. It doesn’t mean an end to easing policies, but future actions look limited and spaced out. Short-term bets tied to rate changes might not yield expected results. It’s a period for careful reassessment rather than urgency. Create your live VT Markets account and start trading now.

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