Michiel Tukker at ING said the European Central Bank is unlikely to raise rates in April. Markets still price in a 25 basis point rise by June and at least one additional increase by the end of this year.
The article says oil price swings are closely linked to expectations for policy at the ECB, the US Federal Reserve and the Bank of England. This link is described as making it harder to take firm positions on future rate moves.
Policy Signals And Market Pricing
It reports that on Tuesday, Christine Lagarde and the IMF pointed to risks to growth in the current environment. The piece adds that this context would tend to reduce expectations for rate rises.
The report also notes Lagarde’s focus on data dependency. It says this supports the view that April may be too soon for a policy change.
It adds that markets are still trying to judge the direction of rates. It says comments from central bank speakers scheduled this week may influence expectations.
We see a clear disconnect between the ECB’s cautious tone and what the market is pricing for interest rates. Swings in oil prices, with Brent crude recently touching $95 before falling back to $88, are making central bankers nervous about growth. This creates uncertainty, which is where opportunities can be found.
Trading The Volatility
The focus on “data dependency” suggests a rate hike in April is off the table, yet markets are betting on a 25 basis point increase by June. Recent data supports this divided view, as Eurozone inflation cooled slightly to 2.7% in March, but core inflation remains stubbornly high at 3.2%. Traders should prepare for volatility as the market digests whether weak growth or persistent inflation will win out.
This environment suggests that simple bets on the direction of rates are risky. Instead, traders should consider using options to trade the expected volatility in short-term interest rate futures. Buying straddles or strangles on Euribor futures would allow a position to profit from a large move in rates, whether it’s a hike in June or a rapid pricing-out of that hike.
We saw a similar dynamic throughout 2025 when markets constantly repriced central bank paths based on every new piece of data. During that time, traders who were positioned for sharp moves, rather than a specific direction, were rewarded. History suggests that when a central bank is hesitant but the market is expectant, a significant repricing event is often not far away.
This isn’t happening in a vacuum, as the Federal Reserve is facing its own challenges with US inflation ticking up to 3.4% last month. The policy divergence between a hesitant ECB and a potentially more aggressive Fed will likely spill over into currency markets. This makes options on the EUR/USD pair another viable way to express a view on this growing central bank uncertainty.
