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JP Morgan has revised its prediction regarding the European Central Bank’s (ECB) interest rate adjustments. The bank now anticipates that the next rate cut will take place in September, rather than the earlier forecasted July.
The ECB’s forthcoming policy meeting is scheduled for July 24, 2025. This meeting will potentially influence future economic decisions and plans.
Changing Economic Signals
That shift in timeline from July to September underscores a reassessment of economic signals observed over recent weeks. While expectations earlier leaned towards a quicker reduction in rates, updated indicators have perhaps not offered the type of confirmation central bankers are looking for to act with more immediacy. Inflation readings, for instance, may still be running warm compared to desired targets, and wage pressures in certain eurozone economies could be lending resilience to price levels. Indeed, unemployment remains relatively low, providing less urgency to ease monetary policy right away.
Diverging views on how sustained or sticky current inflation levels might be have likely prompted strategists to revise their outlook. Patience appears to be gaining favour among policymakers as they try to balance easing financial conditions without reigniting unwanted price acceleration. With this in mind, we must assume that the ECB would prefer more data confirming a trend rather than one-off reports suggesting temporary relief.
For those of us engaged in derivative positioning, this delay changes the shape of near- and mid-term planning. Rate cut expectations over summer must now be moderated slightly, and pricing in moves around the September meeting becomes more relevant. Volatility may increase across nominal interest rate futures and options as participants recalibrate forwards and revise hedging strategies. The window between now and late September has grown more meaningful, and market sensitivity to even minor shifts in CPI and policy language will increase.
Market Reactions
Lagarde and her team are not likely to speak far outside consensus, but any subtle changes in tone—whether leaning more cautious or hinting at prescriptive forward guidance—could draw outsized response in rates and FX markets. Monetary conditions are already tight by historical standards, but the current absence of clear forward motion makes duration more challenging to hold or time with any confidence.
We have to be more surgical across timing and exposure. The slope of the expected easing cycle remains but its steepness has clearly come under question. Flatteners or steeper curve plays may demand tweaks; strike selection for short-term vol buyers needs revisiting. Those strategies that had counted on a July cut baked into short-dated contracts should be actively marked to adjust as positioning further out gains trading volume.
Ultimately, reaction to hard data releases rather than policymaker statements may dictate movement through summer. Pricing models need to pivot from signalling to response-based logic. Fewer assumptions, more scenario control. Waiting for the ECB to meet in September does not mean markets will stand still until then.
