The ECB is expected to raise its deposit rate by 25 basis points to 2.50% today, a move already fully priced in by markets. Eurozone headline inflation accelerated to 3.3% year-on-year in August as energy costs surged, leaving investors focused on President Lagarde's guidance rather than the rate move itself. Banks disagree on whether the ECB hikes again in December.
The European Central Bank is on course to raise its deposit rate by 25 basis points to 2.50% today, a decision markets have already fully priced in. That leaves President Lagarde's press conference, not the rate move itself, as the day's real market event.
Energy costs keep inflation pressure alive
Eurozone headline inflation accelerated to 3.3% year-on-year in August. European gas prices reached their highest levels since 2022 amid geopolitical tensions and disruptions in the Strait of Hormuz. Core and services inflation, however, have continued to moderate even as economic activity has proved more resilient than expected.
Markets already price a shallow tightening path
Traders currently price around 48 basis points of further tightening by year-end and 85 basis points by the end of 2027, meaning today's rate hike is only the first of an expected series. That leaves the bar high for a hawkish surprise: the ECB would need to outdo those expectations to give EUR/USD a meaningful boost, and any euro rally could prove short-lived with US CPI data and the Federal Reserve's own decision looming.
Banks disagree on whether December brings another hike
Barclays expects the deposit rate to hold at 2.50% through 2027, while flagging that rising gas prices could still push the ECB toward a more restrictive stance. Danske Bank likewise expects the rate to stay at 2.50%, pointing to limited evidence that energy costs are spilling into broader inflation. But the hawkish camp is growing: Deutsche Bank now expects another 25 basis point hike in December, taking the rate to 2.75%. JP Morgan and Societe Generale have also shifted to expecting a December hike, though JP Morgan is not ruling out a further move in March.
According to Deutsche Bank: "3.00% rates or higher are difficult to justify" when there is no evidence of second-round effects.
That disagreement leaves EUR/USD reliant on Lagarde's tone, with a cautious, data-dependent message more likely than an explicit hawkish signal.
Sources: Investinglive, Investinglive
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