The European Central Bank (ECB) is expected to leave interest rates unchanged today, with the reference rate maintained at 2.15%. Investors are currently pricing in less than a 30% chance of another rate cut this year, reflecting the ECB’s cautious strategy in response to incoming economic data. The euro-dollar pair (EUR/USD) is currently trading below 1.17.
Keeping rates at their current level is justified by stabilizing inflation. In August, the CPI stood at 2.1% year-on-year, while core inflation remained at 2.3% for the fourth consecutive month. The ECB’s forecasts indicate that inflation should return to target over the medium term, while the latest macroeconomic projections point to gradual acceleration in economic growth and achievement of the 2% inflation target by 2026.
The eurozone economy has demonstrated resilience to external factors such as U.S. tariffs introduced by Donald Trump and political tensions in France. The latest data from Germany show an improvement in business activity and sentiment, reaching the highest level since 2022.
However, divisions remain within the ECB’s Governing Council. Isabel Schnabel has taken a more hawkish stance, warning that inflationary pressures could rise again due to international trade and fiscal expansion. Madis Müller and Olli Rehn have adopted a balanced position, stressing the need to closely monitor further data. On the dovish side, Gediminas Simkus of Lithuania has suggested that a rate cut could come as early as December if the euro strengthens or import prices from Asia decline. Primoz Dolenc of Slovenia remains one of the few not ruling out a possible rate hike, though not until 2026.
Among the risk factors for the ECB is the anticipated decision by the U.S. Federal Reserve to cut rates, which could strengthen the euro and prompt a reaction from Frankfurt. Another uncertainty is the political crisis in France following the resignation of Prime Minister François Bayrou, coupled with budget deficit challenges and rising debt servicing costs—now higher than those of Italy. President Christine Lagarde has remained cautious in this context, avoiding any signals of potential emergency measures.
The ECB continues its “wait and see” strategy. Inflation remains close to target, and the eurozone economy appears relatively resilient to external pressures. The lack of clear signals for further monetary easing suggests that the central bank will proceed cautiously, retaining flexibility in response to potential euro movements and growing fiscal risks, particularly in France.
Author: Krzysztof Kamiński – OANDA TMS
Source: CEO.com.pl
