High stakes 25 times profit! Trader boldly bets that the European Central Bank will cut interest rates by 50 basis points before the middle of the year.

Traders are betting heavily that the European Central Bank will cut interest rates by at least 50 basis points before the middle of this year. According to compiled data, these bets are mainly concentrated on options tied to the three-month Euribor rate due to expire in June, and they have rapidly increased since the beginning of the year. One specific bet shows that if policymakers cut the deposit rate by 125 basis points over the next four policy meetings, the bet will earn over 11 million euros (approximately 11.46 million dollars), which is 25 times the initial investment. This would mean a 50 basis point rate cut at one of the meetings. At this week's World Economic Forum in Davos, Switzerland, policymakers from the European Central Bank stated that they intend to further cut interest rates, as inflation is expected to reach 2% this year, with the potential for a 25 basis point cut at each meeting. According to forward contracts linked to policy meeting dates, the market expects a 25 basis point cut at the next rate meeting on January 30. Ahead of this week's presidential inauguration ceremony in the United States, as traders assess the outlook for US interest rates, bets on rate cuts by the European Central Bank have remained steady. Forward contracts indicate that the market expects the European Central Bank to cut rates three times by June, by 25 basis points each time, totaling four rate cuts by the end of the year. However, the outlook for the next steps by the Federal Reserve is less clear, with market views evenly split on whether the Fed will cut rates once or twice this year. Strategists from the Netherlands International Group suggest that this largely depends on whether traders begin betting on the Fed implementing larger easing measures. In this scenario, they believe a 100 basis point rate cut by the European Central Bank may not be enough. Michiel Tukker, Senior European Rates Strategist at the Netherlands International Group, wrote in a report to clients, "The market may reconsider the possibility of terminal rates approaching 1.5%." Data shows that trading volume for call options on the June-expiring Euribor reached nearly 600,000 contracts on Wednesday. Open positions related to this expiration date have surged by approximately 75% since the beginning of the year, reaching nearly 2 million contracts.