ECB first rate hike since September 2023.

Something unusual happened on June 11th.

The ECB raised interest rates. First hike since September 2023.

After eight consecutive cuts through 2024 and the first half of 2025, the ECB had spent a year convincing everyone that easing was the new normal. Then the Iran conflict sent energy prices through the roof, eurozone inflation jumped to 3.2%, and suddenly we're back to tightening.

Meanwhile, the Fed hasn't moved since last year. Kevin Warsh is sitting at 3.50–3.75%, setting up task forces, and basically telling markets "we'll get back to you."

So now we have a 150 basis point gap between the Fed and the ECB. And if you're a European business with dollar exposure, this gap matters more than you probably realise.

When US rates are significantly higher than European ones, the dollar attracts more capital. That kept EUR/USD falling from 1.20 in January to below 1.14 in mid-May.

But something shifted recently. The euro bounced back hard — up 2.6% in a month — now trading around 1.167. German GDP beat expectations. Eurozone business activity is improving. The ECB is expected to hike again in September. And the dollar weakened after the US Treasury increased its bond buyback programme.

For a European importer paying in dollars, this is good news. Your costs just got cheaper. But will it last?

Nobody knows. And that's the whole point.

Here's what most people miss: this rate differential also affects the price of hedging.

When you buy a forward contract to lock in a future EUR/USD rate, the price factors in the interest rate difference between the two currencies.

Because US rates are still much higher than euro rates, forward contracts that lock in a future dollar purchase actually give you a better rate than today's spot. The market is essentially paying you to hedge.

Read that again. You can lock in a rate for three or six months from now that is better than the rate you'd get converting today.

This doesn't last forever. If the ECB keeps hiking — markets are pricing in another 40 basis points this year — the gap narrows and the forward premium shrinks. If the Fed cuts, same thing.

The window is open now. Most mid-market businesses don't know it exists because nobody explains forward pricing in language that makes sense.

I have this conversation all the time. "What do you mean I get a better rate in the future?" It goes against every instinct — we assume locking in means paying a premium. In this rate environment, it's the opposite.

If you have USD payments coming up in the next 3–12 months, it's worth a 15-minute conversation to see what you can lock in.

Not a commitment. Just the numbers.

You might be surprised.