ECB board member Isabel Schnabel mentioned that current interest rates are only slightly accommodating. She pointed out that inflation risks could rise, which means caution is needed for future monetary decisions. Schnabel discussed tariffs, stating they usually lead to higher inflation. She expressed less worry about the exchange rate in today’s economic conditions.

Global Rate Hikes

She suggested that global interest rate hikes might happen sooner than expected. With the ECB’s meeting on September 11 approaching, many are waiting for more comments from policymakers. Traders currently do not anticipate any additional rate cuts from the ECB this year. The financial markets seem to agree with Schnabel that further reductions are unlikely. Schnabel’s statements indicate that the European Central Bank is not planning more rate cuts for now. As the September 11th meeting nears, this cautious tone confirms recent market expectations. At present, Euro Short-Term Rate (€STR) forwards show only a 15% chance of a rate cut this year—a significant change from the feeling in July.

Currency Traders and Interest Rates

For interest rate derivatives traders, this is a cue to close any positions that would benefit from lower rates. We must be careful not to get caught off guard, similar to the swift policy changes in 2022 when the ECB started increasing rates. The forward curve for Euribor futures should either continue to steepen or hold steady, as the possibility of easing fades. Schnabel’s remark about being “less worried about the exchange rate” is important for currency traders. This gives the ECB space to keep a strict policy without worrying about a stronger Euro, which has recently climbed toward 1.10 against the dollar. This situation makes buying call options on the Euro a more appealing strategy for gains. This prolonged high-interest rate environment poses challenges for stocks, making protective strategies more sensible. With Eurozone flash inflation for August 2025 at a persistently high 2.4%, the reasons for pro-growth stimulus appear weak. Therefore, we can expect an increased demand for put options on major indices like the Euro Stoxx 50. Lastly, we should note that tariffs can lead to inflation. This is not just a theoretical concern, as ongoing trade talks with the United States over important goods might create new price pressures. This external factor supports strategies that benefit from higher market volatility, as trade disputes could compel the ECB to maintain a hawkish stance longer. Create your live VT Markets account and start trading now.

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