The ECB left rates unchanged after its April meeting. The main refinancing rate stayed at 2.15%, the marginal lending facility at 2.4%, and the deposit facility at 2%.
Lagarde said the economy had momentum before current turbulence, with domestic demand still driving growth. She said the outlook is highly uncertain, with conflict weighing on activity, confidence weakening, and supply chains under pressure.
Energy Costs And Domestic Demand
She said high energy costs are likely to weigh on incomes and make firms and households more reluctant to invest. Labour demand has cooled further, while households were described as being in a solid financial position, with a favourable starting point offering some cushioning.
The ECB said upside risks to inflation and downside risks to growth have intensified, and it will decide policy meeting by meeting using incoming data. It said it is not pre-committing to a rate path, and that APP and PEPP portfolios are declining as the Eurosystem no longer reinvests principal payments.
Lagarde said underlying inflation indicators have changed little, longer-term expectations stand around 2%, and energy prices will keep inflation well above 2% in the near term. The ECB will publish revised scenarios in June, and the April decision was unanimous.
After the announcement, EUR/USD was at 1.1695, up 0.17%. The services PMI was reported at 47.4 in April, and markets were pricing about 65 basis points of tightening by year-end.
April Twenty Twenty Five Retrospective
Looking back at the commentary from April 2025, we see a European Central Bank gripped by uncertainty, facing high energy prices and rising inflation risks. The decision to hold rates then was described as a “hawkish hold,” signaling a readiness to hike if necessary. This reflected a challenging period where the risks to growth were to the downside while inflation risks were to the upside.
We now know that the ECB followed through on that hawkish bias, hiking rates several times in the second half of 2025 to bring inflation under control. That tightening cycle ultimately took the deposit facility rate to 3.75%, where it has remained for the past few months. The actions taken last year were a direct response to the inflationary pressures discussed in that April 2025 meeting.
The situation today, on April 30, 2026, has shifted dramatically. Eurozone inflation has fallen significantly, with the latest flash estimate for April showing headline inflation at 2.4%, very close to the 2% target. Meanwhile, economic growth has been weak, with the Euro area barely exiting a mild recession with 0.3% growth in the first quarter of this year.
Given this new landscape, derivative traders should anticipate increased volatility around upcoming data releases, particularly for inflation and wages. With the ECB now signaling a potential rate cut as early as June, any data point that challenges this narrative will cause significant market moves. Options strategies like straddles on Euro Stoxx 50 or the euro could be used to profit from this expected choppiness.
The primary trade will focus on the divergence between the ECB and other central banks, especially the US Federal Reserve. As we price in ECB rate cuts, the interest rate differential will likely move against the euro. This suggests positioning for a weaker EUR/USD, a stark contrast to the 1.17 level seen in early 2025; today the pair trades closer to 1.07.
Traders should also focus on interest rate derivatives that price the forward path of ECB policy. Instruments like Euribor or €STR futures now reflect market expectations for a series of cuts beginning this summer. The positioning here involves betting on the timing and pace of this easing cycle, which remains the central question for the coming weeks.
