Insights 
VT 
Goldman Sachs has revised its expectations for the European Central Bank’s deposit rates. Previously, a 25 bps cut was expected in September 2025.
The new forecast suggests that the terminal deposit rate will remain steady at 2%. This is a change from the earlier prediction of a 1.75% rate.
Impact On The Euro
The adjusted outlook is anticipated to benefit the euro. This change in the rate forecast reflects a shift in economic expectations.
Based on this revised outlook, we see a stronger case for the euro in the near term. Recent data supports this, with Eurozone inflation unexpectedly rising to 2.6% in May, making further rate cuts less certain. Therefore, we should consider strategies like buying EUR/USD call options or long euro futures.
The expectation of a higher terminal rate creates potential headwinds for European equities. Higher borrowing costs can squeeze corporate profit margins, which may cause indices like the Euro Stoxx 50 to stall. This suggests we should look at purchasing put options on these indices as a hedge or a directional bet.
Market Volatility And Strategy
This shift in consensus will likely increase market volatility as traders reposition themselves. ECB President Christine Lagarde herself described the path of disinflation as “bumpy,” reinforcing this uncertainty. Consequently, derivative plays on volatility indices, such as the VSTOXX, could become more attractive.
Historically, when the central bank has signaled a pause or an end to an easing cycle, the single currency has tended to appreciate. We saw similar dynamics in previous periods when rate expectations shifted unexpectedly. This historical precedent strengthens our view that long euro positions are the most direct way to trade this updated forecast.
