Olli Rehn, a member of the European Central Bank’s (ECB) Governing Council, talks about current inflation risks in the Eurozone. He proposes a flexible approach to monetary policy that considers both downward and upward inflation risks. Rehn supports keeping interest rates flexible, avoiding any preemptive actions just for the sake of being cautious. He notes that inflation expectations remain stable around the 2% target, but he cautions that a loss of independence for the Federal Reserve could affect ECB policies.

The Euro Shows Stability

The Euro is steady at about 1.1660 against the USD after Rehn’s remarks, indicating no clear guidance on future interest rates. The ECB, located in Frankfurt, oversees monetary policy in the Eurozone with the main goal of maintaining price stability by adjusting interest rates. Quantitative Easing (QE) is a tool the ECB uses in serious situations to increase liquidity by buying assets, which often weakens the Euro. This strategy was used during financial crises and the COVID pandemic. On the other hand, Quantitative Tightening (QT) is used during recovery; it involves stopping bond purchases, which usually strengthens the Euro. FXStreet offers financial insights but includes a disclaimer about investment risks. The opinions presented may not match FXStreet’s official views, and the author is not responsible for content on external links.

ECB’s Interest Rate Path

The European Central Bank signals it won’t commit to a future interest rate path. The “meeting by meeting” strategy means decisions will depend heavily on new data in the coming weeks. This cautious stance reflects the current concerns around downside inflation risks. Recent Eurostat data shows that inflation for November 2025 has eased to 2.1%, slightly above the target. Coupled with low GDP growth of just 0.1% in the third quarter, this weakens the case for any further rate increases. After the high inflation we faced in 2023, the economic environment has shifted. For options traders, this suggests strategies that benefit from stable prices in the short term, as the EUR/USD remains near 1.1660. However, we should anticipate increased volatility leading up to the next ECB meeting in January 2026. This data-driven approach could lead to sharp, brief price movements on days when data is released. Currently, the key factor for trading the Euro is its relationship with the US Dollar. While the ECB hints at possible easing, the US Federal Reserve is also on a long pause, with market expectations for rate cuts delaying until mid-2026. This divergence in policies is why the EUR/USD has been range-bound lately. We should also monitor comments about the Fed’s independence, which poses a political risk as we enter the new year. Any event that pressures the Fed could greatly impact ECB policy and lead to significant revaluation of Euro-denominated assets. This scenario remains a low-probability, high-impact risk in our analysis. Create your live VT Markets account and start trading now.

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