ECB executive board member Isabel Schnabel stated that current rates are already mildly accommodative. She noted that inflation risks lean towards the upside, suggesting caution regarding future monetary moves.
Schnabel commented on tariffs, stating they generally have an inflationary effect. She expressed less concern about the exchange rate in the current economic climate.
Global Rate Hikes
She indicated that global rate hikes might occur sooner than anticipated. This comes as many anticipate increased commentary from ECB policymakers ahead of the forthcoming meeting on 11 September.
Currently, traders are not expecting any more rate cuts from the ECB for the year. The financial markets appear to align with Schnabel’s remarks about not foreseeing further rate reductions.
Isabel Schnabel’s remarks strongly suggest the European Central Bank’s rate-cutting cycle is over for now. With the September 11th meeting just around the corner, this hawkish tone confirms the market’s recent shift in expectations. As of today, forwards based on the Euro Short-Term Rate (€STR) are pricing in only a 15% chance of another cut this year, a major reversal from the sentiment in July.
Currency Traders and Interest Rates
For those trading interest rate derivatives, this is a signal to close out positions that would benefit from lower rates. We need to be wary of being caught offside, much like what happened during the rapid policy pivot back in 2022 when the ECB began its hiking cycle. The forward curve for Euribor futures should continue to steepen or at least hold firm, as the prospect of easing fades.
The comment about being “less worried about the exchange rate” is particularly notable for currency traders. This gives the ECB room to maintain a stricter policy stance without fearing a stronger Euro, which we have seen climb towards 1.10 against the dollar this morning. This backdrop makes buying call options on the Euro an increasingly attractive strategy to position for further upside.
This higher-for-longer rate environment creates headwinds for equities, making protective derivative strategies more prudent. With the latest flash inflation for the Eurozone in August 2025 coming in stubbornly high at 2.4%, the case for pro-growth stimulus is weak. We should, therefore, anticipate greater demand for put options on major indices like the Euro Stoxx 50.
Finally, we must consider the reference to tariffs being inflationary. This is not just a theoretical risk, as ongoing trade negotiations with the United States on key goods could introduce new price pressures. This external factor supports positions that benefit from higher market volatility, as a trade dispute could force the ECB to remain hawkish for even longer.
