The European Central Bank (ECB) is still discussing a possible rate cut, but they will likely wait until December to make a decision. October is too soon for a change.

The Euro’s Current Strength

Right now, there is an 18% chance that the ECB will cut rates in December. However, this could change if inflation remains low or if economic conditions worsen. Despite these discussions, the euro is strong. It has risen by 50 pips to 1.1744 today. The ECB has indicated that they will pause rate changes for now, making the December meeting crucial. The euro’s strength at 1.1744 shows that the market feels relieved that a rate cut isn’t expected this month. This creates a clear period of uncertainty for trading in the upcoming quarter. The important point is the market’s low expectation for a December rate cut—only 18%. This may be an underestimate, especially since recent data from S&P Global shows the Eurozone Composite PMI dropped to 48.5 in August 2025, indicating a slight contraction in business activity. This presents an opportunity in interest rate options that could benefit if the odds of a rate cut increase.

Derivative Strategies

Volatility in the Euro Stoxx 50, as shown by the VSTOXX index, is expected to stay low in the short term but should be considered for buying if prices dip ahead of late October. We saw this trend in late 2023 when the ECB paused its rate hikes, leading to increased volatility around later policy meetings. If economic data weakens, long volatility positions will become more valuable. Thus, our derivative strategies will have two parts. In the next few weeks, we can sell short-dated options on the EUR/USD pair to earn premiums while the central bank holds steady. For a longer-term approach, we should consider buying euro puts or Euribor call options that expire in December or January. These longer positions provide an economical way to bet that upcoming data will push the ECB to act. The final inflation rate for August 2025 was 1.9%, just below the ECB’s target. This gives policymakers solid grounds to cut rates if economic growth falters. This data makes a December rate cut more likely than the market currently thinks. Create your live VT Markets account and start trading now.

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