The European Central Bank (ECB) has chosen to keep interest rates unchanged in its September 2025 meeting. The deposit facility rate is set at 2.00%, the main refinancing rate at 2.15%, and the marginal lending facility at 2.50%. The ECB’s outlook on inflation has not changed much from earlier estimates. Headline inflation is expected to average 2.1% in 2025, 1.7% in 2026, and 1.9% in 2027. Core inflation is predicted at 2.4% for 2025, 1.9% for 2026, and 1.8% for 2027.

Revised Economic Growth Projections

For 2025, economic growth is now forecasted at 1.2%, up from the previous estimate of 0.9%. The growth expectation for 2026 has been slightly lowered to 1.0%, while the projection for 2027 remains unchanged at 1.3%. The ECB confirmed it will continue to base decisions on data and will not commit to a specific rate path during meetings. Following the announcement, the euro slightly dipped, with EUR/USD decreasing from 1.1685 to 1.1670. The ECB’s message is clear, emphasizing terms like “data-dependent” and “no pre-commitment.” The ECB’s decision to maintain rates suggests stability, indicating strategies that thrive in low volatility could be beneficial. The VSTOXX index, which measures European volatility, has already fallen to 14.5 from earlier highs this year. Selling options, like straddles on the Euro Stoxx 50 index, may yield profits as we can earn premiums while the market remains stable, which appears likely given the ECB’s current stance.

Monitoring Key Economic Indicators

The ECB will respond to incoming data, so it’s important to watch for the next Eurozone flash CPI report. August’s inflation rate was 2.2%, slightly above the ECB’s updated forecast. A strong report could quickly change market sentiment and result in a spike in short-term rates. We should consider buying inexpensive, short-term options on EUR/USD ahead of these data releases to safeguard against or take advantage of any surprises. While the ECB holds the rate at 2.00%, it’s worth noting that the US Federal Reserve’s rate is higher at 3.50%. This 150-basis-point difference makes shorting the euro against the dollar appealing since it allows us to earn daily interest or “carry.” Historical data from 2006 and 2018 suggests these carry trades performed well until the market started pricing in potential rate cuts. The ECB’s own forecasts show some tension, as growth for 2025 is revised up to 1.2% but core inflation persists at 2.4%. This clash between slowing growth and ongoing inflation indicates that the ECB may be hesitant to either raise or lower rates soon. Therefore, trading strategies that expect the front end of the Euribor yield curve to stay flat in the upcoming months appear prudent. Create your live VT Markets account and start trading now.

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