Finance
Traders raise bets that the ECB is done cutting rates
Published by Global Banking and Finance Review
Posted on September 11, 2025
3 min readLast updated: January 21, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on September 11, 2025
3 min readLast updated: January 21, 2026
Traders reduce bets on ECB rate cuts as the bank maintains a positive outlook. The ECB held rates at 2%, with balanced economic risks boosting the euro.
By Yoruk Bahceli, Sara Rossi and Alun John
(Reuters) - Traders on Thursday curbed their bets on another European Central Bank rate cut this cycle, now seeing another move as a coin toss, as the bank sounded sanguine about the economic outlook.
Euro zone rate setters kept their key interest rate on hold at 2% for a second straight meeting, with ECB chief Christine Lagarde reiterating that the bank remains in a "good place" and said risks to the economy had become more balanced than before.
"It's pretty much like saying we're on hold now," said Danske Bank chief analyst Jens Peter Soerensen.
Traders now see just under a 50% chance of another ECB rate cut by June 2026, according to ICAP data, down from around 60% before the ECB's decision earlier on Thursday.
Thursday's policy meeting was the latest milestone in a steady reduction of traders' ECB easing expectations over the summer. In mid-July, traders had nearly fully priced a rate cut by December.
An EU-U.S. trade deal, previous hawkish messaging from the ECB and stronger-than-expected growth and inflation data since have all dented market expectations.
Danske Bank's Soerensen said the description of economic risks as "balanced" in particular reduced traders' rate cut expectations, adding Lagarde could "always twist this language if she (wanted) to keep the possibility of a rate cut."
Declining bets on a rate cut supported the euro, which was last up 0.3% to around $1.173 .
Germany's two-year bond yield, sensitive to interest rate expectations, was up 4 bps to 1.99%.
Those moves were also in contrast to the U.S., where the latest inflation numbers pushed down U.S. Treasury yields and appeared to support expectations for a U.S. rate cut next week.
While markets reduced their rate cut bets, the ECB's economic forecasts highlighted the uncertainty ahead.
The ECB raised its inflation projections for this year and next by a tenth of a percentage point, but cut it by the same amount in 2027 to 1.9%. That means it now projects inflation below target both in 2026 and 2027.
"There is something here for both the hawks and doves," said Divyang Shah, strategist at LSEG's IFR markets.
The slightly higher inflation projection next year supports a view that rate cuts are done, while the below-target forecast in 2027 keeps the door open for another cut, Shah added.
Others cautioned that the ECB had raised the bar for a rate cut even further.
The ECB should have an easing bias at a time when its medium-term forecast shows inflation below target, said Pictet Wealth Management's head of macroeconomic research Frederik Ducrozet.
"I think they should cut, but I don't think they will. It's that simple. As an ECB watcher, a veteran, I know that you shouldn't make the mistake of confusing what you think they should do and what you think they will do. And I think they really don't want to cut anymore."
(Reporting by Yoruk Bahceli, Sara Rossi, Stefano Rebaudo, Alun John and Lucy Raitano; Editing by Susan Fenton, Dhara Ranasinghe and Andrea Ricci)
Traders now see just under a 50% chance of another ECB rate cut by June 2026, down from around 60% before the ECB's decision earlier on Thursday.
The ECB's decision to keep the key interest rate on hold at 2% and the description of economic risks as 'balanced' reduced traders' rate cut expectations.
The ECB raised its inflation projections for this year and next, which supports the view that rate cuts are done, while the below-target forecast for 2027 keeps the door open for another cut.
Declining bets on a rate cut supported the euro, which was last up 0.3% to around $1.173.
In contrast to the ECB, the latest inflation numbers in the U.S. pushed down Treasury yields and appeared to support expectations for a U.S. rate cut next week.
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