The European Central Bank (ECB) is likely to keep interest rates steady in September, with a chance of cuts if the economy worsens. Christine Lagarde expressed confidence in maintaining the key rate at 2%, after a year of reductions. This decision comes as the eurozone economy shows strength and keeps inflation stable at 2%. U.S. tariffs on EU imports, set at 15%, align with the ECB’s expectations, lowering the need for quick rate cuts. However, the ECB suggests that another cut might be necessary in the future, with talks planned for October and December, especially if U.S. tariffs affect exports or the Ukraine conflict continues.

Possible Rate Cuts by 2026

Rate cuts may be possible by spring 2026, even though summer business surveys have boosted confidence in the eurozone. Policymakers warn this optimism might be temporary, as U.S. buyers seem to be placing orders quickly to avoid tariffs. With the ECB expected to keep its key rate at 2% in September, we anticipate low short-term volatility. This is reflected in the VSTOXX index, which tracks Euro Stoxx 50 volatility, currently trading around a low of 14. This situation suggests that selling options with short expirations to earn premiums may be a smart strategy. This stability is backed by recent data. Eurostat’s flash estimate for August 2025 shows inflation holding at 2.1%, comfortably within the bank’s target. Additionally, the eurozone economy grew by a modest 0.4% in the second quarter, going against earlier predictions of a slowdown. Currently, these economic figures are not prompting the ECB to act. However, there is increasing caution shown in derivatives that expire after the ECB’s meetings in October and December. Options that protect against a drop in the euro have risen in cost for year-end contracts, indicating that traders are preparing for a potential dovish shift. A move below 1.05 for the EUR/USD pair could speed up if discussions about rate cuts gain traction.

Legacy Tariffs and Economic Risks

The legacy tariffs from the Trump administration still pose a significant risk for export-heavy sectors. While overall EU-US trade volumes have increased by 3% year-on-year, renewed trade tensions could threaten the economy and push the ECB to reevaluate its position. This ongoing uncertainty, along with the war in Ukraine, justifies holding protective put options on major European indices. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now