Monthly Cash Review – EUR

ECB plays it cool

ECB holds steady on rates and policy; no surprises in October. Eyes on December for potential drama as QT continues and growth stays modest.

14 November 2025

Ahead of the European Central Bank’s (ECB’s) 30 October meeting, markets were bracing for a whole lot of nothing—and that’s exactly what they got. Rates remained on hold, the policy stance stayed unchanged, and the ECB gave no hints of future moves.

With inflation stable and growth mostly resilient, there was little incentive to rock the boat. The real anticipation lies in December, when updated projections might finally inject some drama into the monetary narrative. Until then, speculation about hikes is more myth than reality—like Bigfoot sightings: lots of talk, zero evidence, and definitely not priced in.

Market pricing reflected the ECB’s cautious tone, with about 40% odds of one cut next year and economists split between “one cut,” “no cuts,” and “maybe a hike.” The euro curve continued its slow grind, offering incremental gains for extending duration. LVNAV EUR strategies stayed relatively neutral as duration hovered around 35 days. The curve remained flat. VNAV strategies kept nibbling at credits, squeezing out modest yield bumps without taking on too much risk.

Quantitative tightening (QT) remains on autopilot, with the ECB confirming that the APP and PEPP portfolios are shrinking at a “measured and predictable pace.” Any discussion of slowing or ending QT has been punted to next year. Meanwhile, the eurozone economy grew by 0.2% in Q3—better than expected—with inflation hovering just above the 2% target. Services and digital sectors are keeping the numbers afloat, while manufacturing continues to sulk under the weight of tariffs and a strong euro. The ECB praised the resilience of the labor market but admitted the outlook remains uncertain, citing global trade tensions and geopolitical risks.

Looking ahead, we don’t expect a rate cut anytime soon. The Governing Council seems content with the current stance, and market pricing suggests the deposit rate will stay at 2% for at least six months. That said, if growth remains subdued and inflation dips below target, two rate cuts could be penciled in for 2026—emphasis on “penciled,” because the ECB could erase that forecast at any moment. As for the December press conference, expect President Lagarde to stick to the script: “good place,” “risks on both sides,” and “no comment on French bonds”—not much fireworks.

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