ECB keeps interest rates unchanged again
The European Central Bank (ECB) is holding its final two-day meeting of the year and will announce its monetary policy decision on Thursday. Financial markets expect the ECB to keep key interest rates unchanged for the fourth consecutive meeting, after lowering the rates on the main refinancing operations, the marginal lending facility, and the deposit facility in June to 2.15%, 2.4%, and 2%, respectively.
Alongside the rate decision, the ECB will present updated macroeconomic projections, with a focus on growth and inflation. ECB President Christine Lagarde will hold a press conference to explain the rationale behind policymakers’ decision.
Ahead of the announcement, the EUR/USD pair trades with a modest bullish bias, despite short-term retracement. This trend is largely driven by broad United States Dollar (USD) weakness. If the ECB maintains its hawkish stance, demand for the Euro (EUR) could strengthen. A dovish outcome, however, may pressure the single currency.
The ECB was among the first central banks to cut rates and reach a neutral level. Lagarde has repeatedly stated that monetary policy is in a “good place,” meaning it is well-positioned to address current economic conditions. Still, she emphasizes that decisions are data-dependent and follow a meeting-by-meeting approach with no predetermined path.
There are strong indications that Lagarde will reiterate this message. On one hand, the Governing Council has noted that the Eurozone economy has shown resilience despite headwinds. On the other hand, inflation has been higher than expected but remains within acceptable bounds. According to the Harmonized Index of Consumer Prices (HICP), annual inflation rose to 2.1% in November, while core HICP held steady at 2.4%.
With rates likely unchanged and Lagarde expected to repeat her previous stance, investors will closely examine the ECB’s economic projections. Compared to September’s forecasts, both inflation and growth have exceeded expectations. However, inflation at 2.1% YoY is not alarming. Policymakers are expected to revise GDP and HICP forecasts—raising inflation estimates for this year and lowering them for the next two years.
Regarding growth, policymakers appear more optimistic than recent data suggests. The latest Hamburg Commercial Bank (HCOB) Purchasing Managers’ Index (PMI) shows that economic progress remains sluggish across the bloc. Still, December marked the first full calendar year of growth since the COVID-19 pandemic, although the latest expansion was the slowest in three months.
BNP Paribas analysts believe the updated projections will confirm upward revisions to growth for 2026. In this context, the ECB is unlikely to cut rates further and may even consider a hike in Q3 2027. This outlook, combined with more expansionary fiscal policy in Germany, could push bond yields higher. According to forecasts, the 10-year German Bund yield may exceed 3% in the second half of 2026.
The EUR/USD pair continues to trade with a bullish bias into year-end. Generally, a hawkish ECB decision supports the Euro, while a dovish tone could weigh on it. The consensus is that the ECB will maintain its hawkish stance, especially if Lagarde reiterates that policy is in a “good place,” alongside downward revisions to inflation and upward revisions to growth.
From a technical perspective, Valeria Bednarik, FXStreet’s Chief Analyst, notes that EUR/USD remains mostly bullish, though heavily dependent on USD demand. She adds that the United States CPI inflation report will be released alongside the ECB decision, potentially triggering volatility. Higher-than-expected inflation could fuel speculation of further rate cuts in the United States, weakening the USD and boosting the Euro.
Immediate resistance lies at 1.1804, and a break above could lead to a retest of the 2025 peak at 1.1918. Near-term support is seen at 1.1690, followed by the 1.1620/40 zone, which may attract buyers if prices dip.