European Central Bank’s Upcoming Interest Rate Decision

• The European Central Bank is expected to keep key interest rates steady during Thursday’s meeting.
• Attention is on the ECB’s insights regarding interest rates in light of unexpected inflation and growth rates in the eurozone.
• The ECB’s policy announcement and new forecasts are likely to have a significant impact on the EUR/USD pair.

The European Central Bank (ECB) is anticipated to maintain its key interest rates following the monetary policy meeting in September. The official decision is scheduled for 12:15 GMT on Thursday.

This interest rate decision will be accompanied by updated economic forecasts from ECB staff, with a press conference led by President Christine Lagarde following at 12:45 GMT.

The policy announcement is expected to create volatility in the EUR/USD trading pair, as traders will closely analyze the ECB’s statement and President Lagarde’s comments for hints regarding any potential shifts in policy.

Expectations for the ECB Rate Decision

Since halting interest rate cuts in July, the US and the European Union have entered trade agreements that include a significant 15% tariff on EU exports.

Recent data indicates that the eurozone’s economy has grown; GDP increased by 0.6% in the last quarter and continued to expand by 0.1% through June, defying expectations for no growth.

In August, consumer prices, as measured by the Harmonized Index of Consumer Prices (HICP), rose 2.1% annually, surpassing forecasts while exceeding the central bank’s target of 2%.

The higher-than-expected inflation rates for August, along with positive GDP growth in the second quarter and favorable trade agreements between the US and EU, make the ECB’s rate decision increasingly contentious.

The key question is whether the ECB will explicitly signal the end of its rate-cutting cycle during this meeting.

“The swap market is pricing in 75% odds for a 25 basis point reduction over the next year,” noted analysts at BBH.

On the other hand, a survey by Reuters indicates that most economists believe the ECB has completed its rate reductions.

Some industry experts suggest that President Lagarde and her colleagues may have set high thresholds for future rate cuts, citing concerns about growth and ongoing deflationary pressures that may lead to a return to easing policies.

Analysts at TD Securities expect the press conference to emphasize economic resilience and less trade uncertainty.

They added, “It’s likely President Lagarde will suggest that the council is in a good position, without explicitly mentioning future cuts.”

Impact of ECB Meetings on EUR/USD

The EUR/USD pair is currently hovering near its highest levels since late July as traders prepare for the ECB meeting. Growing expectations of differing policy trajectories between the ECB and the US Federal Reserve bolster Euro optimism.

Meanwhile, political turmoil has emerged in France, with the parliament voting to oust Prime Minister François Bailloux and his minority government over fiscal reform plans, leading President Emmanuel Macron to seek yet another prime minister within two years.

However, this ongoing political crisis in the eurozone’s second-largest economy is unlikely to disrupt central bank decisions and forecasts this week.

In July, Lagarde noted that the central bank was in “a good place to hold and see.” If the ECB’s Monetary Policy Statement or Lagarde’s comments reflect a cautious policy stance, it may support the current upward trend in EUR/USD.

Adjustments to inflation and growth forecasts for 2025 could also be seen as hawkish, providing further support to major currency pairs.

Conversely, if the quarterly forecasts unexpectedly indicate lower growth and inflation for the year, it could trigger significant selling pressure on the EUR/USD pair.

Moreover, a lack of clear guidance on future interest rate movements could lead to declines.

“EUR/USD is testing the crucial 21-day simple moving average (SMA) at 1.1678. However, the 14-day relative strength index (RSI) remains above 50, suggesting that the upward bias in this currency pair is still intact despite recent pullbacks from two-month highs,” Dhwani commented.

“Buyers may set their sights on a nine-week high of 1.1780 and a July peak at 1.1830, with 1.1900 as a key target. On the flip side, a sustained break below the 21-day SMA and the 50-day SMA support zone at 1.1670 could signal further downside risk.”