Nordea expects the ECB to keep rates unchanged for now, while watching how the Middle East conflict affects euro-area growth and inflation. It still forecasts the first rate rise in the second half of next year, but says the chance of an earlier move has increased. The note says higher energy prices that last could push policy tighter rather than looser, with reference to the inflation shock in 2022. It links this risk to the possibility that energy costs stay elevated for longer.

Labour Market Stays Tight

It adds that recent data show the labour market remains tight, with unemployment falling to another record low in January. It also says services inflation remains sticky. The article says the ECB’s February meeting account listed multiple risks, including concern about higher energy prices. It also refers to research mentioned in the account that geopolitical risk shocks can act like adverse supply shocks, with a persistent upward effect on inflation and an upward shift in the distribution. FXStreet reports the item was produced using an AI tool and reviewed by an editor. It attributes the market commentary to Nordea’s Chief Analyst Jan von Gerich and is presented by the FXStreet Insights Team. Looking back to early 2025, we noted the European Central Bank was carefully monitoring the conflict in the Middle East. The primary concern was how a prolonged period of higher energy prices would impact the Eurozone’s growth and inflation. Given the experience of 2022, the bias was clearly towards tighter policy if inflation risks grew.

Energy Prices And Policy Risks

Those upside risks did materialize through the middle of last year. We saw Brent crude prices climb over 15% between May and September 2025, which directly fed into inflation expectations. This confirmed our view that central bankers would rather act to curb inflation than risk falling behind the curve again. At the same time, domestic pressures did not ease as the ECB might have hoped. The labour market remained historically tight, with the unemployment rate hovering at 6.5% for the second half of 2025 according to Eurostat data. This contributed to sticky services inflation, which consistently printed above 4% throughout last year. This environment ultimately prompted the ECB to act, hiking its main interest rate by 25 basis points in November 2025. This action aligned with our forecast for a move in the second half of the year, confirming the rising risks we saw early on. The central bank made it clear that geopolitical shocks were being treated as adverse supply-side events with persistent inflationary effects. Now, as we move through March 2026, the ECB remains data-dependent and vigilant. Traders should position for the possibility that the central bank is not yet finished with its tightening cycle. Options strategies that bet on higher interest rate volatility, particularly around upcoming inflation data releases, seem appropriate. Specifically, derivative traders should consider buying call options on EURIBOR futures to position for further rate hikes that may not be fully priced in by the market. This offers a defined-risk way to profit if the ECB is forced to act more aggressively in the coming months. Hedging against a more hawkish ECB is the prudent move. Create your live VT Markets account and start trading now.

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