ECB Policy Outlook Into 2027
On that path, BNP Paribas expects the ECB to raise rates in the second half of 2027 and projects the deposit facility rate reaching 2.5%. The article notes it was produced with the help of an AI tool and reviewed by an editor. We see Eurozone growth firming up this year, building on the resilience observed throughout 2025. The latest flash manufacturing PMI for March showed a modest uptick, confirming this trend, while February inflation came in at 1.7%. This environment suggests the ECB will remain on hold for the foreseeable future. For interest rate derivatives, this points to a period of calm in the coming weeks for the front end of the curve. We should not expect significant moves in short term interest rate futures such as contracts expiring in mid 2026. The focus should be on positioning for the eventual rate hikes now being priced into the second half of 2027.Equities And FX Strategy Implications
The economic backdrop is supportive for European equities, fueled by German fiscal measures and targeted AI investment. After the Euro Stoxx 50 index saw steady gains in the final quarter of 2025, conditions appear set for continued stable upside. Buying call options or constructing bullish call spreads on major European indices could be a viable strategy to capitalize on this. In the currency market, the euro volatility will likely remain low. With the ECB on a predictable path, EUR USD could continue the range bound trading seen for much of last year. Given recent US data suggesting the Federal Reserve may need to stay vigilant on inflation, selling options to collect premium on the euro appears attractive. Create your live VT Markets account and start trading now.
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