Insights 
VT 
Edward Scicluna, the Central Bank of Malta Governor and ECB policymaker, mentioned that the European Central Bank should refrain from hastily implementing further interest-rate reductions. The impact of the increased trade tariffs under Trump on pricing remains uncertain, with ambiguity surrounding whether they will drive disinflation or inflation.
As of the report’s writing, the EUR/USD pair had risen by 0.42%, trading around 1.1695. The European Central Bank, based in Frankfurt, Germany, is responsible for managing monetary policy and setting interest rates to stabilise prices in the Eurozone, with a target inflation rate of approximately 2%.
Quantitative Easing and Tightening
In extreme financial conditions, the ECB might resort to Quantitative Easing (QE), printing Euros to purchase assets, usually leading to a weaker Euro. Conversely, Quantitative Tightening (QT) follows QE, halting bond purchases and reinvestments, generally strengthening the Euro. These measures are strategic responses by the ECB to varying economic circumstances, with their usage marked by significant global events like the Great Financial Crisis and the COVID-19 pandemic.
The recent comments from ECB’s Scicluna suggest we should not expect another rate cut soon. The latest Eurostat flash estimate for September 2025 showed headline inflation holding at 2.4%, still stubbornly above the ECB’s 2% target. This makes the ECB’s 25 basis point cut back in September 2025 look like it could be the last for a while.
The main reason for this hesitation is the uncertainty surrounding new US trade tariffs. As we saw with the details released last week on the proposed 15% tariff on EU automotive imports, it is not clear if this will stoke inflation by raising prices or crush demand. The market is reflecting this confusion, which is why we must be careful.
Impact on Derivatives Trading
For derivatives traders, this means we should expect continued volatility in Euro-related assets. The VSTOXX index, a key measure of Eurozone equity volatility, has jumped over 25% in the last month, touching levels not seen since the energy crisis of late 2022. This suggests that buying options, like straddles or strangles on the EUR/USD, could be a prudent way to trade the upcoming indecision rather than taking a simple directional bet.
While the ECB is signaling a pause, we are also seeing signs of a more dovish Federal Reserve, which puts a floor under the EUR/USD around the 1.1700 level. Looking back, the rate divergence between the Fed and ECB was a major driver of currency moves throughout 2023 and 2024, and that theme is re-emerging now. Therefore, long positions in the Euro could be protected, but upside might be capped by the trade tensions until there is more clarity.
