The ECB is anticipated to maintain its deposit rate at 2.50% during the meeting on Thursday. Energy-driven price pressures sustain investor expectations for a potential rate hike by the Central Bank in December. Markets are keenly anticipating commentary from the ECB regarding inflation risks, growth prospects, and the trajectory of future monetary policy. The EUR/USD pair has experienced a depreciation following a period of modest gains observed the previous day, currently trading at approximately 1.1140 during the Asian trading hours on Thursday. The pair loses ground as the US Dollar bounces back from the previous day’s losses following the Federal Reserve’s decision to keep interest rates unchanged.
The Federal Reserve maintained interest rates at 3.75%-4.00%, observing that economic activity remains on an upward trajectory. In its statement, the Fed underscored the persistence of domestic spending, the vigour of capital investment, and the strength of productivity growth. In fulfilling its employment mandate, the central bank noted that job gains have aligned with workforce growth, while the unemployment rate has remained relatively stable. On the inflation front, the Fed acknowledged that price pressures remain elevated; however, it opted to pause further rate hikes to collect additional data and evaluate the suitable monetary policy stance. The decision was not unanimous, as Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack expressed dissent in favour of an immediate rate increase.
Fed Chair Kevin Warsh reiterated the Federal Open Market Committee’s dedication to ensuring price stability and reaching its 2% inflation target, highlighting the robustness of the underlying economy. He also outlined future scheduling for monetary policy, noting that the Fed will hold eight meetings next year-including one without a formal vote-and that he anticipates six policy-setting meetings in 2028. Meanwhile, the Euro faces headwinds as the European Central Bank is expected to hold its deposit rate unchanged at 2.50% at its Thursday meeting, following a total of 50 basis points in rate increases earlier in the year. However, persistent energy-driven inflation continues to ignite discussions regarding the potential for policymakers to consider another rate hike in December.
Consequently, market participants are closely observing the ECB’s assessment of inflation risks, economic growth, and any indications regarding the future path of interest rates. Analysts at Danske Bank highlight that the ECB’s Q3 Bank Lending Survey points to only a limited impact from recent policy moves on credit conditions. They note that “banks tightened credit standards more than expected, although the net share reporting a tightening remained low from a historical perspective and was mainly driven by banks in France.” In Danske’s view, this pattern “suggests that the ECB’s tightening has so far only led to a modest tightening of credit standards and should not in itself stop the ECB from tightening further as the pass-through remains relatively smooth.”
