Pierre Wunsch, an ECB policymaker and head of Belgium’s central bank, said the ECB could raise interest rates at its April meeting to limit the knock-on effect of the energy crisis on other prices. He said that if no action is taken by June, a rate rise may be needed, while still not ruling out an April move.
He said the ECB needs to act at some point to control indirect inflation effects, but the medium-term outlook remains uncertain. He said policymakers should learn from acting late in the past and said he would go into the April meeting open to either outcome.
Possible Rate Path Scenarios
He said a fast end to the crisis could allow a later reversal of any rate rise. He also said a longer crisis could lead to the first rise being followed by a series of increases.
The Euro showed no clear reaction to the comments. EUR/USD was up 0.15% to near 1.1565, linked to mild US Dollar weakness.
The ECB is the Eurozone’s central bank, based in Frankfurt, and aims to keep inflation around 2%, mainly by setting interest rates. The Governing Council meets eight times a year; it includes national central bank heads and six permanent members, including President Christine Lagarde.
Quantitative easing involves creating Euros to buy assets and was used in 2009–11, 2015, and during the covid pandemic, and is often linked with a weaker Euro. Quantitative tightening reverses this by ending bond buying and stopping reinvestment of maturing bonds, and is often linked with a stronger Euro.
Market Implications For Traders
Given the persistent inflation data we’ve seen, this sentiment feels familiar. Looking back, we remember the debates from 2022-2023 where some officials felt the bank was too slow to act against the initial energy price shock. The lesson to avoid being late again will likely weigh heavily on the Governing Council’s thinking in their upcoming meetings.
As of today, April 7, 2026, the market is facing a similar dilemma with Eurozone inflation for March coming in at 2.4%, slightly above the 2.2% forecast. Much of this is driven by stubborn services inflation, fueled by recent wage growth figures that are holding steady at 4.1%. This data puts the European Central Bank in a difficult position, forcing them to consider if a hawkish pivot is needed.
For derivative traders, this uncertainty suggests a re-evaluation of interest rate positions. The swaps market is currently pricing in a low probability of a rate hike before the end of the third quarter, which seems too complacent. We believe paying fixed on short-term interest rate swaps, such as the 2-year EUR swap, offers value as a hedge against a more aggressive ECB response.
This environment could also be supportive for the Euro, which has been lagging against the dollar. We see an opportunity in buying near-term call options on EUR/USD, perhaps targeting a strike price around 1.1700 for June 2026 expiry. This provides a defined-risk way to position for a potential repricing of ECB policy that would strengthen the currency.
The division within the ECB between prioritizing growth and tackling inflation will likely lead to higher market volatility. Looking back at the market swings of 2022, we learned that such policy uncertainty is a tradable event. Traders should consider buying volatility through options on the Euro STOXX 50 index, as any hawkish surprise could disrupt equity markets.
