European Central Bank board member Isabel Schnabel has shown support for the belief that the ECB will likely raise interest rates next. She thinks the current rates are suitable and highlights the economy’s strength, assuming there are no major disruptions. As of the latest update, the EUR/USD exchange rate increased by 0.17%, reaching 1.1665, which indicates how the market is reacting.

Role Of The European Central Bank

The ECB, located in Frankfurt, Germany, serves as the reserve bank for the Eurozone. It manages monetary policy and sets interest rates to keep inflation stable at a target of 2%. The ECB Governing Council makes decisions to raise or lower rates, which affects the strength of the Euro. Quantitative Easing (QE) is a strategy where the ECB buys assets using newly printed Euros to boost the economy. This usually leads to a weaker Euro, especially when simply lowering rates doesn’t stabilize prices, as was the case during past crises. In contrast, Quantitative Tightening (QT) reverses QE actions when the economy improves. During QT, the ECB stops buying bonds and does not reinvest money from maturing bonds, typically strengthening the Euro. This occurs following inflation increases after economic growth. Back in early 2024, officials like Isabel Schnabel showed support for expected rate hikes when the EUR/USD was close to 1.1665. That shift towards a tighter policy has since fully unfolded over the last two years, and the market expected this cycle of tightening after the comments were made.

Current Economic Indicators

The ECB’s rate hikes have effectively reduced inflation toward its goal. The most recent Eurozone HICP data for November 2025 showed inflation at 2.3%. This was accomplished by increasing the main deposit rate to 3.25%, where it has stayed for six months. The struggle against high inflation that dominated recent years appears to be over. However, the previously noted economic strength is now being challenged, as high interest rates begin to take effect. Recent Eurostat data revealed the Eurozone economy grew by just 0.1% in the third quarter of 2025, indicating a notable slowdown. This sluggish growth is now the key focus for the market, replacing previous concerns about inflation. For derivative traders, the situation has shifted from preparing for rate increases to anticipating when the ECB will cut rates. There is now more activity in options on Euribor futures, with discussions centered around *when* the ECB will begin cutting rates in 2026, rather than *if*. This indicates that planning for lower rates and a steeper yield curve is now a smart approach. As a result, the boost that raised the Euro to about 1.2050 against the dollar has diminished. With the US economy showing stronger growth, the difference in monetary policy will likely benefit the dollar in the upcoming months. Therefore, using currency options to hedge against or speculate on a drop in EUR/USD is something to consider in the coming weeks. Create your live VT Markets account and start trading now.

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