Isabel Schnabel, a member of the European Central Bank (ECB) executive board, said that interest rates don’t need to change right now. She emphasized that the main focus should be on core inflation. While inflation risks are creeping upwards, core inflation remains the priority.
Schnabel pointed out that food-price inflation is still high, and there are no signs of lower inflation pressures at the moment. She added that the economy has a positive momentum and can accept small changes in the inflation target.
Euro Attracts Bids
After Schnabel’s comments, the Euro gained slight interest, with the EUR/USD trading 0.12% lower, around 1.1570. The ECB’s main responsibilities include setting interest rates and managing monetary policy to keep prices stable at about 2%.
When lowering interest rates isn’t enough to ensure price stability, the ECB buys assets through quantitative easing, which often weakens the Euro. Once the economy recovers, quantitative tightening takes place, potentially strengthening the Euro, by stopping asset purchases and reinvesting in matured bonds.
Schnabel’s recent statements suggest the ECB is likely to maintain high interest rates for some time. This is directly linked to core inflation, which remained steady at 3.1% in the latest estimate for October 2025. Any assumptions about possible rate cuts soon may be incorrect.
Long Term Rate Expectations
This supports the idea of “higher for longer” that has been growing since the ECB paused its interest rate hikes in 2024. For derivative traders, this could mean preparing for a flat or slowly rising short-term yield curve. They might look into options strategies like selling short-dated straddles on Euribor futures that benefit from steady interest rates.
The Euro’s strength, climbing from below 1.10 in early 2025 to around 1.1570 now, is backed by this difference in policy. We believe the Federal Reserve seems to be moving towards rate cuts, which is a positive sign for the Euro. Therefore, long EUR/USD call options or call spreads might be good ways to take advantage of further growth in the upcoming weeks.
The ongoing strong food-price inflation is also important as it continues to strain household budgets and keeps overall inflation numbers high. With Eurozone GDP growth showing a modest yet positive rate of 0.2% in the third quarter of 2025, the ECB has little reason to ease its policy. We’re closely monitoring upcoming wage growth data, as it will be a key indicator for the central bank.
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