Insights 
VT 
European Central Bank policymaker Boris Vujčić noted that the growth in the Eurozone is positive, albeit low. He anticipates approaching the 2% inflation target by the end of 2025 and reaching it in early 2026.
These statements did not have a noticeable effect on the Euro. The EUR/USD rate was 0.19% lower on the day, standing near 1.1310 at the time of the comments.
Forward Looking Statements
This information includes forward-looking statements that bear risks and uncertainties. The data provided is for informational purposes only and should not be considered investment advice.
Readers are encouraged to conduct their own research before making financial decisions, as the markets can pose significant risks. Neither the authors nor other sources guarantee that the information is without errors or omissions.
When Vujčić mentioned that growth in the Eurozone remains low but on the positive side, he was acknowledging that while the broader economy isn’t contracting, it’s certainly not expanding at a pace that might pressure the European Central Bank to alter course abruptly. The expectation that the 2% inflation target could be reached by late 2025 – with a full return to that level by early 2026 – suggests that the ECB may not be compelled to tighten monetary policy further in the very near term. If anything, it signals a wait-and-see approach, built on continued cautious optimism about inflation cooling at a manageable rate.
Despite this relatively dovish tone, the EUR/USD exchange rate dipped slightly, shedding 0.19% on the day these remarks were made. This mild decline implies that markets did not view the policymaker’s comments as cause for meaningful revaluation of the Euro’s position against the Dollar. It’s possible that traders had already priced in similar expectations based on recent macroeconomic indicators and ECB commentary.
Interest Rate Markets
For those following rate derivatives – including forward rate agreements, interest rate futures, and swaps – these remarks serve as a guidepost of sorts. With inflation expected to align with the ECB’s target about two years from now, it’s clear there’s no immediate rush towards tighter conditions. That timeline helps shape the anticipated path of policy rates, with shorter-term rates likely to remain relatively stable. Medium-duration pricing could begin to reflect a gentle steepening, especially if incoming data confirms the ECB’s trajectory.
We’ve observed that in interest rate markets, the near-term OIS curve in Europe remains flat, confirming that participants expect few, if any, sudden moves from the central bank over the coming quarters. There may instead be incremental adjustments priced further out. As such, volatility in shorter maturities appears contained. The challenge for us lies more in modelling further along the curve, where inflation risks, wage growth, and energy prices continue to weigh.
In recent days, there’s been an increase in the use of options structures to hedge both sides of the rate path, indicating that some desks are bracing for more two-way action as economic releases begin to show divergence. We should consider recalibrating spread trades between Euribor and short Sterling or SOFR depending on how transatlantic expectations shift. These choices hinge not only on the ECB’s measured stance but also on responses from other major central banks, which may or may not trigger reallocation across macro portfolios.
We’re also seeing discrepancies in implied volatility that suggest the market sees more uncertainty from late 2025 into early 2026, possibly reflecting lingering concerns about the resilience of growth or external shocks. This could mean that there is too much confidence priced into the baseline inflation path. A careful review of cap/floor strategies might therefore be worthwhile.
In terms of tactics in the coming weeks, close monitoring of second-tier inflation data across the bloc could offer early indications of whether core price pressure is dissipating as expected, or if stickiness returns – which could generate spike risks in the back end of rate curves. Activities in longer-term payer swaption space often become more telling in this environment. Some of these positions are already starting to stretch along the 2-year expiry mark, pricing a mild reacceleration risk.
It’s worth noting as well that this policymaker, while not in the most influential voting camp, contributes to shaping overall sentiment in the Governing Council. The tone expressed aligns with consensus but remains carefully balanced. This underscores the sense that while upside inflation risks are still on the radar, the ECB is comfortable with its base case for now.
We see few near-term catalysts that would drastically alter this outlook ahead of the next ECB meeting, particularly as incoming PMIs have been neutral at best. However, guidance from upcoming monetary policy accounts or interviews by other Council members may begin to shift expectations, even at the margin.
For now, the signals are telling us that the ECB is content with the direction things are heading, without being fully convinced that the job is done. That subtle distinction is key.
