From Trump's tariffs impact to the Russian asset dispute, five questions about the European Central Bank's monetary policy path.

Currently, traders in the interest rate futures market are undecided about whether the European Central Bank will restart its loose policy next year, but these traders generally bet that the European Central Bank is likely to announce on Thursday that it will once again stand firm and continue to suspend rate cuts. At the beginning of October, the resurfacing of tension in U.S.-China trade relations kept global financial markets cautious, but strong economic data in the Eurozone and positive signs of progress towards a deal between the U.S. and China indicate that traders have once again reduced their bets on rate cuts. Current market pricing shows that the probability of the European Central Bank continuing to stand firm on Thursday is very high, as the impact of the tariffs policy initiated by the Trump administration on the Eurozone economy is still under observation. However, the market remains uncertain about whether the European Central Bank will reopen its rate cut process next year. For the European Central Bank, here are the five key questions that financial market traders are focusing on: 1. What action will the European Central Bank take this week? Traders expect the European Central Bank to announce on October 30th at the rate decision that it will maintain the benchmark rate at 2% for the third consecutive monetary policy meeting. This expectation has seen little change since September when European Central Bank policymakers generally stated that the Eurozone economy was still in a "good position." They have not yet seen the full impact of the U.S. tariffs policy, and the 12% rise in the Euro exchange rate this year (which is likely to depress inflation) has significantly retreated. "This is just a transitional monetary policy meeting. The more important one will be in mid-December." said Reinhard Cluse, Chief European Economist at UBS. 2. Latest data shows inflation returning above the 2% target, will the European Central Bank continue to be concerned? Overall, the latest stance revealed by European Central Bank policymakers indicates that they are not worried about Eurozone inflation persisting above the ECB's targeted 2%. In September, Eurozone inflation unexpectedly rose to 2.2%, the first time above the 2% target set by the central bank since April, mainly due to rising service prices and a slowdown in energy cost declines. This result is in line with the general expectations of economists. The European Central Bank expects overall inflation in the Eurozone to fall to 1.7% next year and remain below the 2% inflation target by mid-2027. The minutes of the European Central Bank's monetary policy meeting in September showed that policymakers generally believed that inflation risks were roughly balanced, but more monetary policy decision makers seemed more concerned about the risk of weakening inflation rather than sustained inflation. Paul Hollingsworth, Director of Developed Markets Economics at BNP Paribas, said, "Short-term inflation risks are downward, due to the stronger Euro and deflationary impact from Asian exports." Here, he refers to the risk that countries exporting surplus goods from Asia may dump them into the European market. He also added that the upward risks from Germany's fiscal stimulus policy are more mid-term than short-term. 3. Why do financial market traders keep changing their expectations for rate cuts in 2026? Earlier this month, U.S. President Donald Trump announced additional tariffs on Chinese imports, raising initial concerns about a significant escalation of trade risks. Therefore, a significant shift from September is that traders at that time priced about an 80% probability of restarting rate cuts in 2026; earlier, the European Central Bank's tough stance had led the market to rule out such measures. But data last week showed that the Eurozone economy is regaining growth momentum, and Trump said he hopes to reach a positive and mutually agreed trade agreement with China this week, prompting traders to lower their bets on restarting rate cuts in 2026 once again. Interest rate futures traders currently expect that by the end of 2026, the probability of the European Central Bank restarting rate cuts is slightly less than 50%. 4. High economic uncertainty persists. What does this mean for the European Central Bank's monetary policy expectations? This highlights why European Central Bank policymakers have not closed the door to further rate cuts. Philip Lane, Chief Economist at the European Central Bank, said that downside risks to the economy reinforce the reasons for keeping rates "slightly lower," while upside factors support the European Central Bank's stance. He also warned that Eurozone banks may face liquidity pressures if dollar funding dries up. Some economists say that the impact of U.S. tariffs policies and the potential escalation of trade tensions are still the most significant downside risks facing the Eurozone economy. Cluse from UBS said that further strengthening of the Euro exchange rate and slower-than-expected implementation of the German stimulus could also prompt the European Central Bank to restart rate cuts. European Central Bank policymakers also stated that AI-driven stock market valuations continue to rise, increasing the risk of sudden repricing in global financial markets, which could harm the Eurozone economy. Uncertainty about French budget policies is unlikely to sway the European Central Bank's monetary policy thinking, but the latest move by the Socialist Party last Friday once again increased the risk of the French government falling. 5. In discussions about using frozen Russian assets to aid Ukraine, what is the European Central Bank's policy stance? The European Central Bank does not have official authority, but at a time when the European Central Bank has the opportunity to enhance the global influence of the Euro, the European Central Bank does not want the reputation of the Euro as a sovereign currency to be damaged. This will not have a substantial impact on the expectations of the European Central Bank's monetary policy. Some EU member governments hope to invest Russian cash assets held in Belgium's Euroclear and coming from maturing Russian bonds in zero-coupon bonds issued by the EU, and then use the proceeds to provide loan support to Ukraine. However, the Russian government will still retain claims and ownership of these assets to avoid complete confiscation, which is the most negative scenario for the Euro. Russia has stated that it will respond "painfully" to any such action. Christine Lagarde, the President of the European Central Bank, stated that the EU must abide by international law in this process and she would prefer all countries holding Russian assets and cash to provide loan support to Ukraine. But this idea was shelved last Thursday, to be discussed again in December. Jens Eisenschmidt, Chief European Economist at Morgan Stanley, said that ultimately, factors such as defense capabilities, defense capabilities, and the limited depth of the Eurozone capital markets play a more decisive role in determining the Euro's status as a global reserve currency.