Impact of Economic Data
The upcoming ECB policy meeting on 17 April may result in a 25bps rate cut, influenced by recent economic data, including a decline in March services inflation. The extension of US tariff reprieves complicates this outlook, as some Governing Council members may advocate for a pause.
If a cut occurs next week, a hold in June is anticipated. The ongoing dialogue about the neutral rate will intensify as the deposit rate decreases, with an emphasis on the need for clear economic justification for further easing.
By June, further insights into Germany’s fiscal stimulus and EU defence spending should emerge, impacting growth and inflation projections. The mix of fiscal stimulus and tariff uncertainties suggests multiple possible scenarios for ECB rates, which may be evident in forthcoming statements from the ECB.
We’re heading into the 17 April European Central Bank meeting with a strong possibility of a 25 basis point cut. This follows a noticeable slowdown in service inflation in March, which has softened arguments for a longer hold at current levels. What stands out is not just that inflation is easing, but that the composition of inflation is shifting—price pressures in labour-intensive areas seem to be losing momentum. That’s likely to reinforce the views of Governing Council members already leaning dovish.
However, there’s nuance here. The recent extension of U.S. tariff reprieves throws a bit of grit into the gears. This shift in external policy may prompt more cautious voices within the Council to argue for a pause, if only to give the data time to adjust to these extended measures. Even if we do see a reduction in rates in April, the conversation is clearly moving towards a slower sequence, with expectations for a pause in June gaining ground.
Future Fiscal Developments
What matters now is the reasoning behind any shift. The ECB has been consistent in saying that further moves must be backed by economic evidence. As rates begin their downward path, the debate around the neutral rate—that elusive level where the stance is neither stimulating nor restraining—will become more intense. When rates fall below that hypothetical level, we start entering into stimulative territory. That makes each step more consequential.
We’ll also get a clearer view of broader fiscal conditions by early June. Berlin is expected to provide more concrete details on planned stimulus measures, and any EU-wide security spending should begin filtering into macro models. Both developments will feed into revised estimates for euro area growth and inflation, which could justify a shift in rate expectations in either direction.
There’s a wide set of outcomes sitting just a few policy meetings away. One path could see steady, cautious easing, if economic activity continues to cool modestly. But if fresh fiscal spending injects momentum back into the system—or if geopolitical trade frictions distort supply chains again—we may find the ECB needing a different course entirely. Markets may find direction in upcoming ECB communications, not by way of specific forward guidance, but through phrasing that signals tolerance for either pausing or going further.
For now, implied volatility should stay reactive to macro releases and any new comments from policymakers. We’ve seen optionality pricing adjust in alignment with higher uncertainty—this likely persists as traders weigh the speed and depth of further policy action. Structured positions will need to consider the timing mismatch between potential rate cuts and the data flow needed to justify them.
We’re watching a shifting balance, where the ECB has opened the door to easing—but only wide enough for markets to step through tentatively.
