The European Central Bank (ECB) announced on Thursday that it raised key rates by 25 basis points (bps) following the September meeting, as expected. With this decision, the interest rate on the main refinancing operations, the interest rates on the marginal lending facility and the deposit facility stood at 2.65%, 2.9% and 2.5%, respectively.
ECB delivers data-dependent hike as inflation risks stay elevated
The FXS Speechtracker score of 7.4 versus a historic 6.4 signals a more hawkish-than-usual ECB tone, consistent with a 25 bps hike across the deposit, refinancing and marginal lending facilities and inflation projections that remain above the 2% target through 2028. By flagging upside risks to inflation, downside risks to growth and a broad range of outcomes around the energy shock, the statement underscores a bias toward keeping policy restrictive even as the Euro-area outlook stays fragile.
The explicit commitment to a data-dependent, meeting-by-meeting approach and the refusal to pre-commit to a rate path keep optionality open, but the emphasis on strong monetary policy transmission and readiness to adjust all instruments reinforces a hawkish tilt. For FX, the combination of higher policy rates, persistent above-target inflation and ongoing balance sheet runoff via APP and PEPP supports the Euro on dips, especially against lower-yielding currencies, while the growth risks and elevated uncertainty may cap sustained Euro rallies and keep volatility elevated around incoming data.
ECB policy statement key takeaways
“Baseline of new ECB staff projections sees headline inflation averaging 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028.”
“For inflation excluding energy and food, baseline foresees 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028.”
“Compared with June, baseline projection for inflation in 2026 is unchanged, while it has been revised up for 2027 and 2028.”
“Baseline projection for economic growth is 0.9% for 2026, 1.4% for 2027 and 1.5% for 2028.”
“Outlook remains highly uncertain, with risks to upside for inflation and to downside for economic growth.”
“In relation to energy shock, updated scenarios put together by staff illustrate broad range of outcomes for how growth and inflation would evolve under different assumptions about its intensity and duration, as well as its indirect and second-round effects.”
“With today’s decision, ECB remains well positioned to navigate uncertainty caused by conflict.”
“Will follow a data-dependent and meeting-by-meeting approach to determining appropriate monetary policy stance.”
“In particular, ECB’s interest rate decisions will be based on its assessment of inflation outlook and risks surrounding it, in light of incoming economic and financial data, as well as dynamics of underlying inflation and strength of monetary policy transmission.”
“ECB is not pre-committing to a particular rate path.”
“APP and Pandemic Emergency Purchase Programme (PEPP) app and PEPP portfolios are declining at a measured and predictable pace, as Eurosystem no longer reinvests principal payments from maturing securities.”
“ECB stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises at its 2% target in medium term and to preserve smooth functioning of monetary policy transmission”
Market reaction to ECB interest rate decision
The ECB policy announcements failed to trigger a noticeable market reaction. At the time of press, EUR/USD was down 0.15% on the day at 1.1615.
Euro Price This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.01% | 0.00% | -1.08% | -0.10% | 0.23% | 1.00% | 0.39% | |
| EUR | 0.00% | 0.02% | -1.04% | -0.10% | 0.25% | 1.01% | 0.41% | |
| GBP | -0.01% | -0.02% | -1.17% | -0.11% | 0.24% | 1.00% | 0.39% | |
| JPY | 1.08% | 1.04% | 1.17% | 1.06% | 1.38% | 2.15% | 1.53% | |
| CAD | 0.10% | 0.10% | 0.11% | -1.06% | 0.39% | 1.11% | 0.50% | |
| AUD | -0.23% | -0.25% | -0.24% | -1.38% | -0.39% | 0.76% | 0.15% | |
| NZD | -1.00% | -1.01% | -1.00% | -2.15% | -1.11% | -0.76% | -0.61% | |
| CHF | -0.39% | -0.41% | -0.39% | -1.53% | -0.50% | -0.15% | 0.61% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Developing story, please refresh the page for updates.
This section below was published as a preview of the European Central Bank’s (ECB) monetary policy announcements at 08:00 GMT.
- The European Central Bank is expected to hike key interest rates on Thursday after pausing in July.
- ECB President Lagarde’s comments and updated economic forecasts will be closely scrutinized.
- The Euro is poised for a big reaction to the ECB’s policy announcements.
The European Central Bank (ECB) is expected to raise the interest rate on the Main Refinancing Operations and the Deposit Facility by 25 basis points (bps) to 2.65% and 2.50%, respectively. The ECB will announce the decision on Thursday at 12:15 GMT.
Unlike in July, the interest rate decision will be accompanied by the central bank staff’s updated economic projections and followed by ECB President Christine Lagarde’s press conference at 12:45 GMT.
The Euro (EUR) is likely to experience intense volatility around the ECB’s policy announcements, as all eyes will be on the central bank’s signals on the future rate path.
What to expect from the ECB interest rate decision?
The ECB is set to resume raising interest rates after pausing at its July monetary policy meeting.
Renewed hostilities in the Middle East and the resulting rebound in energy prices continue to spur inflation concerns and bolster rate-hike expectations.
The Eurozone’s Harmonized Index of Consumer Prices (HICP) annual inflation accelerated to a nearly three-year high of 3.3% in August, remaining above the ECB’s 2% target.
Meanwhile, the Q2 Gross Domestic Product (GDP) in the Old Continent grew 0.6% quarter-on-quarter (QoQ) after contracting by 0.2% in the first quarter. On a yearly basis, economic growth rose 1.2% from 0.3% in the preceding period.
“The Eurozone macro backdrop argues in favor of bringing the policy rate closer to the upper end of the ECB’s 1.75%-3.00% neutral range. The swaps curve more than fully prices in ECB rates at 3.00% in the next twelve months, which is EUR supportive,” Analysts at BBH explained.
With a rate hike on Thursday all but certain and little change expected to September’s inflation and growth forecasts, the main focus will be on the language in the Monetary Policy Statement and President Lagarde’s comments during the post-policy meeting press conference.
Given recent hawkish commentary from several ECB policymakers, markets will closely watch for any hints from Lagarde about the possibility of additional rate hikes this year.
How could the ECB meeting impact EUR/USD?
The Euro remains stuck in a narrow range below 1.1650 against the US Dollar (USD), consolidating the pullback from three-month highs of 1.1711, ahead of the ECB event risks.
If President Lagarde signals that additional tightening could be needed, particularly because inflation remains well above the 2% target, markets could price a higher terminal rate.
A hawkish tone, combined with upward revisions to inflation forecasts, would likely support the Euro and push EUR/USD back above the 1.1700 round level.
On the other hand, the Euro could weaken sharply and send EUR/USD toward 1.1550 if the ECB president emphasizes weaker growth risks and characterizes the inflation shock from energy prices as temporary, suggesting a more cautious approach to future tightening. This scenario could prompt traders to scale back expectations for additional rate hikes and weigh on the EUR.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, highlights key technical levels for trading EUR/USD following the monetary policy announcement.
“The pair trades above the 21-day, 50-day and 100-day Simple Moving Averages (SMAs), while battling the 200-day SMA around 1.1640. The cluster of underlying SMAs suggests a constructive backdrop, and the Relative Strength Index (RSI) around 58.50 on the daily chart hints at firm but not overextended bullish momentum.”
“On the topside, the first hurdle aligns at the 1.1700 threshold. A sustained break above this barrier would open the way for a retest of the 1.1750 psychological barrier. Above that level, the 1.1790 supply zone will be exposed. On the downside, initial support is seen at the 100-day SMA around 1.1560, and the 50-day SMA near 1.1526, providing deeper layers of demand should a pullback unfold.”
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.