The European Central Bank’s policymaker, Simkus, remarked that the easing cycle is nearing its end, although it might not be completely concluded yet. Inflation is predicted to maintain a level around 2% in the medium term.
Simkus’s comments represent a more dovish stance compared to his colleagues within the ECB. His view appears to be in the minority at present within the organisation.
The Easing Cycle
The easing cycle may not be over, but Santa isn’t bringing a bag full of rate cuts this Christmas. From our perspective in mid-September 2025, this suggests any further move would be a small, token gift at best. This aligns with market pricing, which shows only a slim 30% chance of one final quarter-point cut by year-end.
With Eurozone inflation ticking up slightly to 2.1% in the August flash estimate, this dovish hint seems out of step with the broader Governing Council. We’ve already seen the ECB cut its deposit rate twice this year to 2.75%, so the hurdle for another cut is high. The majority will likely want to see more data before committing to further easing, especially with core inflation proving sticky.
Market Implications
For those trading interest rate derivatives, this suggests the rally in bond prices may be exhausted. We saw German 10-year Bund yields fall earlier in 2025 on rate cut expectations, but they have since stabilized around 2.3%. Betting on a significant further drop in yields from here looks like a risky play.
Equity traders should see this as a signal that the easy monetary-policy-driven gains are behind us. The Euro Stoxx 50 index rallied through the summer on the back of the cuts, but with central bank support fading, upside seems limited. Selling call options with strikes well above the current market could be a way to collect premium from fading bullish momentum.
In the currency markets, this may create a floor for the euro. The EUR/USD has been weak all year, falling towards 1.05, but the end of the ECB’s cutting cycle removes a major headwind. Buying long-dated call options on the euro could be an interesting contrarian trade, especially if the US Federal Reserve starts hinting at cuts for 2026.
