At a glance
-
ECB kept rates unchanged, sticking to a data-dependent, meeting-by-meeting approach as 2026 inflation projections were revised higher.
-
Updated forecasts leaned modestly hawkish, with firmer services inflation and stronger growth reducing the likelihood of near-term rate cuts.
-
EURUSD moved higher post-decision, reclaiming its 100-hour moving average and testing key resistance near 1.1762, a level sellers are watching closely.
The ECB left interest rates unchanged, in line with expectations, and reiterated its data-dependent, meeting-by-meeting approach, avoiding any commitment to a predefined rate path. While the decision itself was neutral, updated staff projections carried a modestly hawkish tilt, led by higher 2026 inflation forecasts driven primarily by stickier services inflation alongside a stronger growth outlook.
Inflation and growth projections tilt slightly hawkish
Inflation forecasts were revised higher for 2026, with both headline and core inflation now expected to decline more slowly than previously anticipated, even as they move closer to the ECB’s 2% target. This reinforces the Governing Council’s cautious stance and supports the view that policy easing is not imminent.
At the same time, growth forecasts were revised higher, reflecting improved domestic demand conditions. The combination of firmer inflation dynamics and better growth gives the ECB room to remain patient and resist signaling near-term rate cuts.
Policy guidance unchanged, flexibility emphasized
The ECB maintained firm policy guidance, stressing that it remains ready to adjust all instruments as needed to ensure inflation stabilizes at its 2% medium-term target and to preserve the smooth transmission of monetary policy. Markets interpreted the updated projections as reducing the likelihood of cuts and slightly increasing the probability of a hike later in the cycle, even if that remains a tail risk.
Market reaction: EUR firmer, Bunds softer
Market reaction leaned modestly hawkish. The euro strengthened, Bund yields moved higher, and implied odds of a rate hike by end-2026 rose toward 30%. Despite that shift, the base case of a 2.00% terminal deposit rate remains intact, with attention now squarely on President Lagarde’s press conference for clues on whether the ECB’s next move is more likely a cut or a hike.
EURUSD technical analysis: buyers test key resistance
From a technical perspective, the EURUSD has pushed higher following the ECB decision, with price moving back above the 100-hour moving average, currently near 1.1742. That move has helped tilt the short-term bias back in favor of buyers.
The rally has now reached a key upside target at 1.1762, a level that previously acted as resistance
