Makhlouf says the ECB is cautious and waiting for strong evidence before considering more rate cuts.
by VT Markets
/
Jul 29, 2025
Inflation in the Euro Area has stabilized, indicating steady economic price levels. Current growth trends are aligning with expectations.
The European Central Bank (ECB) is taking a wait-and-see approach regarding potential rate cuts. They want strong reasons before making any changes to economic policy.
Limited Information
Right now, there isn’t enough information to fully analyze the recent US-EU deal, leading to a cautious outlook on its possible effects.
The ECB is clearly pausing its rate cuts, which suggests that no further cuts are likely in the near future unless there’s a significant change in economic data.
Inflation data from last week shows a headline rate of about 2.3%, which means the ECB doesn’t feel rushed to make a move. Additionally, second-quarter growth was just 0.4%, matching their forecasts and providing no cause for immediate action. These results support a “wait and see” mindset for at least the next few weeks.
Effect on Financial Markets
For the interest rate derivative markets, this means we can expect lower volatility. Selling options on EURIBOR futures, which benefit from time passing and stable prices, could be a smart approach. Taking bets on a significant, short-term drop in rates now carries much more risk.
We anticipate the Euro will trade within a defined range against the US dollar because the ECB’s pause removes a major influence on currency movements. This situation is good for strategies like selling strangles on EUR/USD options, allowing traders to profit from an expected lack of major price swings. Historically, currencies tend to stabilize when central bank policies are clear.
European stock markets, like the Euro Stoxx 50, might also start moving sideways. While steady rates provide some support, the underlying theme of modest growth will likely limit any large rallies. Implied volatility on stock index options has already dropped to its lowest level since April, reflecting this market atmosphere.
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by VT Markets
Jul 29, 2025
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