Martin Kocher, Governor of the Österreichische Nationalbank and an ECB member, said in a Wall Street Journal interview on Monday that the ECB should be ready to move interest rates quickly in either direction.
He said uncertainty has risen since the start of the year, which means the key rate could be lowered again.
Rates Volatility Outlook
He said disruption to oil markets or shipping through the Strait of Hormuz could raise costs and push inflation higher.
He said policymakers will consider currency movements, but they will not have a decisive effect on interest rate decisions.
We are seeing clear signals that the central bank is prepared to move interest rates quickly in either direction. This outlook is increasing volatility, and we have seen the implied volatility on 3-month Euribor options jump nearly 12% over the last month. Traders should anticipate wider price swings in government bond futures.
The possibility that the key rate will be lowered is growing due to increased uncertainty since the start of the year. Last week’s flash PMI data for February 2026 showed a worrying slowdown in the services sector, which supports the case for a preemptive rate cut. We saw a similar dynamic in late 2025 when weak data prompted the market to price in easing before the bank confirmed its dovish stance.
Positioning For Two Way Risk
However, a sudden spike in inflation could force a rate hike. Recent tensions in the Strait of Hormuz have already pushed Brent crude prices back towards $90 a barrel, and last month’s Eurozone HICP inflation report showed energy costs rising for the first time in four months. This creates a tangible risk that cost pressures could accelerate quickly.
Given these strong opposing forces, strategies that profit from a large move in any direction are prudent. We believe using derivatives like long straddles on short-term interest rate futures is a logical approach. This allows a trader to benefit from a significant policy shift, whether it is a cut or an unexpected hike.
Policymakers will take account of currency moves, but they will not have a decisive impact on rate decisions. This suggests the traditional correlation between rate expectations and the euro’s value may weaken. Therefore, using EUR/USD options as a direct proxy for ECB policy could be a less reliable strategy in this environment.
