The European Central Bank (ECB) has likely finished lowering interest rates, according to Primoz Dolenc, Slovenia’s acting central bank governor. He mentioned that the ECB believes its current policy is suitable for reaching its inflation goal, with no new information changing this view from the July Governing Council meeting. Decreased uncertainty has played a role, especially after the European Union secured a trade deal with the United States. This deal set a 15% tariff on most exports, slightly higher than earlier predictions but not likely to impact growth and inflation much. The ECB kept interest rates steady in July after a series of cuts over the past year. It is expected to maintain this approach, with no new cuts anticipated soon. The next ECB meeting is set for September 10-11, and markets show no expectation of further cuts this year. With the ECB indicating an end to interest rate cuts, we need to reevaluate our interest rate strategies. For example, any bets on short-term rate decreases, like holding long positions in EURIBOR futures, should be reconsidered. The focus now is on a stable policy environment, making it a good time to explore trades that benefit from steady rates. This perspective is supported by recent inflation data released at the end of August 2025, showing that headline inflation is at 2.1%, just above the ECB’s target. More importantly, core inflation has stubbornly remained at 2.4%, giving policymakers little reason to cut rates further. Market pricing reflects this, indicating less than a 10% chance of another cut this year. The certainty around ECB policy and the new US trade agreement has been beneficial for the Euro. The EUR/USD exchange rate has risen from about 1.08 in early July to over 1.11 in the last week. We should think about strategies involving derivatives that profit from a stable or strengthening Euro, especially since the interest rate gap with the US is not widening. This decrease in uncertainty has also reduced volatility, with the VSTOXX index falling below 15 for the first time since May 2025. This creates a favorable environment for selling options to generate income, as unexpected policy changes seem less likely. Selling strangles on equity indices or bond futures could take advantage of this calm period. Remember the time after the ECB paused its aggressive rate hikes in late 2023? The market was very sensitive to individual data points for months. So, while the main policy direction is clear, we should expect short-term volatility around upcoming inflation and employment reports. These events will create key opportunities for tactical trades in the coming weeks.

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