The European Central Bank (ECB) policymaker, Simkus, stated that the easing cycle is almost finished but may not be entirely over. He predicts inflation will stay around 2% in the medium term. Simkus’s views are more cautious compared to his colleagues at the ECB. Right now, he seems to be in the minority within the organization.

The Easing Cycle

While the easing cycle might still have a bit to go, it’s unlikely we’ll see many rate cuts this Christmas. Looking ahead to mid-September 2025, it appears that any future rate change would be very small. The market reflects this, showing only a 30% chance of a last quarter-point cut by the end of the year. In August, Eurozone inflation ticked up slightly to 2.1%. This cautious tone from Simkus seems out of sync with the broader ECB. This year, the ECB has already cut its deposit rate twice to 2.75%, making it unlikely they will cut again without more data, especially since core inflation remains stubbornly high.

Market Implications

For traders in interest rate derivatives, this suggests that the rise in bond prices may be coming to an end. Earlier in 2025, German 10-year Bund yields fell due to hopes for rate cuts, but now they’ve stabilized around 2.3%. Expecting a large drop in yields from here is a risky bet. Equity traders should note that gains from easy monetary policy may be slowing down. The Euro Stoxx 50 index saw gains over the summer thanks to lower rates, but with central bank support waning, further upside looks limited. Selling call options with strikes well above current levels could be a good way to earn premiums as bullish momentum fades. In currency markets, this outlook may provide some support for the euro. The EUR/USD has struggled this year, dropping to about 1.05, but the end of the ECB’s rate-cutting cycle removes a significant barrier. Buying long-dated call options on the euro might be a smart contrarian move, especially if the US Federal Reserve hints at rate cuts for 2026. Create your live VT Markets account and start trading now.

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