Pierre Wunsch, a policymaker at the European Central Bank (ECB), mentioned that the chances of further interest rate cuts by the ECB are decreasing. The risks of inflation are seen as fairly balanced. The EUR/USD currency pair increased by 0.1%, now trading around 1.1655. The ECB, located in Frankfurt, Germany, oversees monetary policy for the Eurozone to keep prices stable.

European Monetary Policy

The central bank affects the Euro’s value through interest rate changes. Typically, higher rates strengthen the currency. The ECB’s Governing Council, which includes leaders from national banks and six permanent members, meets eight times a year to make policy decisions. Quantitative Easing (QE) is a strategy the ECB uses in tough times by printing Euros to buy assets, which can often weaken the Euro. It is used when adjusting interest rates alone isn’t enough to meet inflation goals. On the other hand, Quantitative Tightening (QT) is used when the economy is recovering and inflation rises. During QT, the ECB stops buying bonds, which usually strengthens the Euro by reducing the money available to banks. These comments signal a key change in the ECB’s policy direction. The idea that rate cuts are less likely marks the end of an easing cycle that the markets had been expecting. This has become the main theme as we head into the final quarter of 2025.

Current Economic Climate

As of October 16, 2025, this cautious stance has been supported by recent data. Eurostat’s latest flash estimate for September 2025 shows inflation stubbornly at 2.8%, which is above the ECB’s 2% target. This is why the central bank has kept its deposit rate at 4.25% for the last four meetings. For traders in EUR options, this suggests that implied volatility might lower in the coming weeks. With the ECB firmly holding its rate steady, strategies like selling straddles or strangles could be effective, anticipating that the EUR/USD will stay within a narrower range. The pair has fluctuated between 1.2150 and 1.2300 over the past month, a significant shift from the larger swings seen earlier in the year. Looking at the interest rate derivatives market, the forward curve for Euribor futures has flattened considerably. This indicates that the market no longer expects major rate cuts in the first half of 2026. Any positions betting on quick monetary easing will likely need to be reviewed. The main risk to this stable outlook is the drop in economic growth. Recent figures for Eurozone GDP in Q3 2025 show only a 0.2% increase. A faster-than-expected economic slowdown could lead the ECB to change its stance, increasing the chances of rate cuts once again. Traders should pay close attention to economic indicators from Germany and France to catch any signs of further decline. We’ve seen this kind of situation before, particularly during 2011-2012, when the ECB paused its policy changes due to concerns over sovereign debt and uncertain growth. That period resulted in range-bound trading with sharp, sudden movements based on new data. This history suggests that while selling volatility may be beneficial now, having some long vega positions as a hedge is a smart move. Create your live VT Markets account and start trading now.

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