Bundesbank President Joachim Nagel said the European Central Bank could raise interest rates as soon as April if higher energy prices increase inflation risks. He linked the risk to rising oil and gas prices and disruption tied to a closure of the Strait of Hormuz. Nagel said policymakers would have enough information by the ECB meeting on 29–30 April to decide whether to tighten policy or wait. He said that further tightening should not be ruled out too early.

Euro Area Money Supply Signals

Euro area monetary data showed weaker momentum in February. M3 growth slowed to 3.0% year on year from 3.2%, and M1 growth eased to 4.8% from 5.2%. The data point to more moderate liquidity conditions alongside steady but subdued credit growth across the euro area. The effect of the Middle East conflict on credit behaviour is not yet clear. The article states it was produced using an artificial intelligence tool and reviewed by an editor. The Euro is currently caught between two opposing forces, creating uncertainty for the coming weeks. We see hawkish talk from central bankers worried about Middle East energy prices, while key economic data shows slowing monetary momentum. This clash between words and numbers suggests a period of heightened volatility for the currency.

Trading For Volatility

For derivative traders, this environment is a classic signal to consider strategies that profit from price swings, regardless of the direction. Buying volatility on the Euro could be a prudent approach, as the market could react sharply to either an unexpected rate hike or a confirmation of economic weakness. The key is to be positioned for a decisive move rather than betting on a specific outcome. This view is strengthened by the latest inflation figures from earlier this month, which showed headline inflation ticking up to 2.8% on energy costs, while core inflation actually eased to 2.5%. This mixed data gives both hawks and doves at the ECB ammunition, adding to the market’s indecision. The uncertainty makes option strategies like straddles, which bet on a large price move, particularly relevant. The geopolitical risk is not just theoretical; we saw Brent crude futures jump last week after another tanker was briefly detained near the Strait of Hormuz. These real-time events give weight to Bundesbank President Nagel’s warning about a potential April rate hike to combat energy-driven inflation. This makes the hawkish scenario a tangible threat that the market must price in. We should also remember the ECB’s response to the energy shock back in 2022 and 2023, as viewed from our perspective in 2025. The central bank showed a clear willingness to hike rates aggressively to fight soaring energy inflation, even as the economy was slowing. This historical precedent suggests we should not underestimate their willingness to act again if they feel inflation is getting out of control. Looking at the interest rate markets, futures are currently pricing in only about a 35% probability of a 25-basis-point hike at the April meeting. This pricing offers a clear opportunity for traders to place bets based on their assessment of the situation. One could trade EURIBOR futures to speculate on whether the market is under- or overestimating the chances of the ECB acting next month. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account