Martins Kazaks, a policymaker at the European Central Bank (ECB), discussed the need for ongoing interest rate cuts. He emphasised a cautious approach as the bank nears the terminal rate, suggesting that cuts should be implemented step by step.

In other recent news, the ECB reported that negotiated wages in the Euro area advanced by 4.12% year-on-year in Q4 2024, compared to 5.43% in Q3. Additionally, the EUR/USD exchange rate appears to be facing resistance at the 100-day moving average.

Kazaks has made it clear that while rate cuts are expected to continue, they will not be rushed. Instead, adjustments will be made gradually as the central bank approaches what it sees as an appropriate level for rates. This suggests that officials remain watchful of inflation trends and broader economic conditions. If data shows that price pressures remain sticky, we could see more hesitation before adjustments are made.

On the wage front, the ECB’s latest data points to a slowdown in the growth of negotiated wages. This is something we will need to keep an eye on, as it plays a central role in inflation expectations. A deceleration here indicates that inflationary pressures from wages may be softening, which could make policymakers more comfortable with additional cuts. However, wage growth is still relatively high compared to pre-pandemic levels, meaning that cost pressures remain in the system.

In the foreign exchange market, the euro is showing signs of restraint against the dollar, with the 100-day moving average acting as a barrier. Traders watching this level should take note – if the EUR/USD fails to break through, this could reinforce a bearish outlook for the pair. On the other hand, if the currency manages a move beyond this resistance, we could see momentum shift in the short term. Given that central banks on both sides of the Atlantic are adjusting their policies, keeping a close watch on rate expectations will be necessary.

For those involved in derivatives trading, keeping an eye on how these factors play out in the coming weeks will be key. The adjustment in rate expectations, combined with movements in wage data and technical resistance in FX markets, provides multiple angles for positioning. If rate cuts proceed steadily and wage growth continues to ease, we might see a shift in sentiment that could open new opportunities. The relationship between these elements will be central to anticipating market moves and adjusting strategies accordingly.