Insights 
VT 
Isabel Schnabel, a member of the European Central Bank’s executive board, stated that interest rates currently do not need adjustment, with a primary emphasis on core inflation. She mentioned that while inflationary risks lean slightly upward, core inflation remains the main focus.
Schnabel observed that food-price inflation remains strong and there are no sustained disinflationary pressures presently. She noted the economy has positive underlying momentum, and tolerates small deviations from the inflation target.
Euro Attracts Bids
Following Schnabel’s remarks, the Euro attracted slight bids, with the EUR/USD trading 0.12% lower near 1.1570. The ECB’s main role involves setting interest rates and managing monetary policy to maintain price stability at around 2%.
The ECB uses quantitative easing by purchasing assets, often weakening the Euro, to achieve price stability when lowering interest rates is insufficient. Quantitative tightening is employed post-economic recovery, potentially strengthening the Euro, by ceasing asset purchases and reinvesting matured bonds’ principals.
The latest comments confirm the European Central Bank is likely to keep interest rates elevated for the foreseeable future. We see this stance as a direct response to core inflation, which remained sticky at 3.1% in the latest October 2025 flash estimate. This suggests any bets on imminent rate cuts are probably misguided.
Long Term Rate Expectations
This reinforces the “higher for longer” narrative that has been building since the ECB paused its hiking cycle back in 2024. For derivative traders, this could mean positioning for a flat or slightly upward-sloping short-term yield curve. Options strategies that profit from interest rate stability, such as selling short-dated straddles on Euribor futures, might be worth considering.
The Euro’s strength, which saw it climb from below 1.10 in early 2025 to its current level around 1.1570, is supported by this policy divergence. We believe the Federal Reserve is showing more signs of pivoting to rate cuts, creating a favorable outlook for the Euro. Therefore, long EUR/USD call options or call spreads could offer a way to capitalize on further upside in the coming weeks.
The mention of strong food-price inflation is also critical, as it continues to pressure household budgets and keeps headline numbers elevated. With Eurozone GDP growth showing modest but positive momentum at 0.2% in the third quarter of 2025, the ECB has little incentive to ease policy. We are watching the upcoming wage growth data closely, as this will be the next key indicator for the central bank.
