Pierre Wunsch, an ECB policymaker and head of Belgium’s central bank, said the ECB could raise interest rates at its April meeting. He said a rise may be needed by June to limit the energy crisis passing into wider prices for goods and services.
He said the ECB needs to act at some point to control indirect price effects. He said the medium-term outlook remains uncertain.
Learning From Past Policy Delays
He said the ECB may have acted late in the past and should learn from that. He said he will attend the April meeting open to both options.
He said a quick end to the crisis could allow a rate rise to be reversed later. He said if the crisis lasts, the first rise could be followed by a series of rises.
In markets, his comments appeared to have no effect on the euro. EUR/USD was up 0.15% to about 1.1565, blamed on slight US dollar weakness.
Looking back at remarks from early 2025, we were reminded of the European Central Bank’s willingness to act against inflation, even amid uncertainty. The lesson we had to draw was that the ECB was wary of being late to hike rates. That pattern of thinking is crucial for us to consider right now.
Implications For Rates Volatility And FX
The situation today, April 7, 2026, shows that this lesson is still relevant. Eurozone inflation is proving sticky, with the latest figures showing headline CPI at 2.5%, still stubbornly above the central bank’s 2% target. This persistent pressure means we must be prepared for a firm tone from the ECB at their meeting later this week.
For those trading interest rate derivatives, this suggests caution against betting on imminent rate cuts. We should consider positions that benefit from rates staying higher for longer, such as paying fixed on interest rate swaps or using options on Euribor futures to hedge against a hawkish surprise. The German 10-year bund yield, currently at 2.45%, could easily test higher levels if the ECB signals no rush to ease policy.
Volatility is another key area to watch. The Euro Stoxx 50 Volatility Index (VSTOXX) is hovering around 15, which is relatively calm, but this could change rapidly following the upcoming ECB press conference. We should think about buying cheap, out-of-the-money options on major indices as a cost-effective way to protect portfolios from a sudden spike in market choppiness.
In the currency market, this dynamic puts the focus back on the EUR/USD pair, now trading near 1.0850. If the ECB maintains a stricter stance on inflation than the US Federal Reserve, it could provide a floor for the euro. We can use option strategies, like bull call spreads on the EUR/USD, to position for potential upside while defining our risk.
