Christine Lagarde said the ECB left key interest rates unchanged at its March policy meeting and answered questions from the press. She said the decision was unanimous.
She said the war in the Middle East had tightened financial conditions. She also said short-term rates have risen notably.
Lagarde said the Governing Council was briefed by experts, including a professor of military affairs. She said the Council’s mood was calm and determined, and focused on information.
She said the ECB is well-positioned to deal with the development of a major shock unfolding. She said she could not give a timeline.
Given the decision to hold rates steady, we see a clear clash between central bank policy and market fears. The war has sent Brent crude over $115, a significant jump from the stable prices we saw in late 2025, and this is tightening financial conditions on its own. The market is pricing in risk, but the message today is one of strategic patience.
The lack of any timeline is the most important signal for us, as it guarantees continued uncertainty. With the VSTOXX index now trading persistently above 25, we should increase our positions that profit from high volatility. This means buying straddles on the Euro Stoxx 50, as the underlying geopolitical tensions make a large price swing more likely than a period of calm.
We’ve seen German 2-year yields jump 40 basis points in the past month, but the decision to hold rates suggests this move may be overdone. We should use Euribor futures to position for a less aggressive rate path than the market is currently pricing in for the next six months. The risk of an economic slowdown from this energy shock is now just as high as the risk from inflation.
Looking back at the energy shock of 2022, we remember how inflation can force a central bank’s hand, but this situation feels different. The Euro is caught between a hawkish hold and a major flight to safety, making EUR/USD options attractive for defining our risk. We should consider buying puts to protect against a worsening of the conflict.
The briefing from a military expert is highly unusual and tells us this is not being treated as a typical economic shock. This elevates the probability of tail-risk events, so we must hedge our broader equity portfolios accordingly. Buying far out-of-the-money puts on major indices is now a necessary cost of doing business.
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