The European Central Bank (ECB) announced on Thursday that it lowered key rates by 25 basis points (bps) following the January policy meeting, as expected. With this decision, the interest rate on the main refinancing operations, the interest rates on the marginal lending facility and the deposit facility stood at 2.9%, 3.15% and 2.75%, respectively.
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ECB policy statement key highlights
“Inflation has continued to develop broadly in line with staff projections and is set to return to ECB’s 2% medium-term target in course of this year.”
“Domestic inflation remains high, mostly because wages and prices in certain sectors are still adjusting to past inflation surge with a substantial delay.”
“Recent interest rate cuts are gradually making new borrowing less expensive for firms and households.”
“At same time, financing conditions continue to be tight, also because monetary policy remains restrictive and past interest rate hikes are still transmitting to stock of credit, with some maturing loans being rolled over at higher rates.”
“Economy is still facing headwinds but rising real incomes and gradually fading effects of restrictive monetary policy should support a pick-up in demand over time.”
“Will follow a data-dependent and meeting-by-meeting approach to determining appropriate monetary policy stance.”
“In particular, interest rate decisions will be based on its assessment of inflation outlook in light of incoming economic and financial data, dynamics of underlying inflation and strength of monetary policy transmission.”
“ECB is not pre-committing to a particular rate path.”
“APP and Pandemic Emergency Purchase Programme (PEPP) portfolios are declining at a measured and predictable pace, as Eurosystem no longer reinvests principal payments from maturing securities.”
Market reaction to ECB rate decision
EUR/USD pair showed no immediate reaction to the ECB rate decision and the policy statement. The pair was last seen trading marginally lower on the day near 1.0400.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.05% | 0.05% | -0.86% | -0.07% | 0.02% | 0.05% | 0.02% | |
| EUR | -0.05% | -0.01% | -0.91% | -0.13% | -0.04% | -0.00% | -0.03% | |
| GBP | -0.05% | 0.01% | -0.92% | -0.11% | -0.02% | 0.00% | -0.03% | |
| JPY | 0.86% | 0.91% | 0.92% | 0.81% | 0.90% | 0.89% | 0.89% | |
| CAD | 0.07% | 0.13% | 0.11% | -0.81% | 0.10% | 0.12% | 0.08% | |
| AUD | -0.02% | 0.04% | 0.02% | -0.90% | -0.10% | 0.03% | -0.00% | |
| NZD | -0.05% | 0.00% | -0.01% | -0.89% | -0.12% | -0.03% | -0.04% | |
| CHF | -0.02% | 0.03% | 0.03% | -0.89% | -0.08% | 0.00% | 0.04% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
This section below was published as a preview of the European Central Bank’s policy announcements at 08:00 GMT.
- The European Central Bank is set to lower key rates by 25 bps at the January policy meeting.
- ECB President Christine Lagarde’s words will hold the key to offering fresh policy cues.
- ECB policy announcements are expected to rock the EUR/USD pair and infuse intense volatility.
The European Central Bank (ECB) interest rate decision will be announced on Thursday at 13:15 GMT following the conclusion of the January monetary policy meeting. Markets are anticipating another reduction in key rates, marking a continuation of the easing cycle after December’s rate cut. No updated staff economic projections will published at this meeting.
ECB President Christine Lagarde will hold a press conference at 13:45 GMT, where she will deliver the prepared statement on monetary policy and respond to media questions. The ECB announcements will likely inject intense volatility around the Euro (EUR) against the US Dollar (USD).
What to expect from the European Central Bank interest rate decision?
After lowering key rates in December, the ECB is widely expected to announce another 25 basis points (bps) cut, taking the benchmark rate on deposit facility from 3% to 2.75%. It would be the fourth straight interest rates cut after trimming them in September, October and December 2024.
In December’s post-policy meeting press conference, ECB President Christine Lagarde said that “risks to growth are tilted to the downside,” while the “risk to inflation is now two-sided.”
Speaking on the inflation and interest rate outlook in a CNBC interview last week, on the sidelines of the World Economic Forum (WEF) annual meetings in Davos, President Lagarde said: “We’re confident Eurozone inflation will be at target over the course of 2025,” adding that “gradual moves in rates come to mind at the moment.”
Eurostat’s preliminary data released on January 7 showed that the Eurozone Harmonized Index of Consumer Prices (HICP) rose 2.4% year-over-year (YoY) in December after reporting a 2.2% increase in November. The data aligned with the market forecast. The annual core HICP inflation held steady at 2.7% in the same period.
Eurozone inflation remained elevated and moved slightly from the central bank’s 2.0% target in December. Economists at ABN Amro noted that “the rebound in headline inflation was driven largely by energy, with both the lower base from last year but also recent weakness in the Euro contributing to higher petrol prices, as well as higher gas and electricity prices with Europe running down its gas inventories somewhat faster than usual this winter. “
Subsequently, the accounts of the December ECB meeting published on January 16 showed: “There were still many upside and downside risks to the inflation outlook. More check points had to be passed to ascertain whether disinflation remained on track and kept open the optionality to make adjustments along the way.”
Against this backdrop, the ECB’s communication in the policy statement and President Lagarde’s comments will hold the key to determining the scope and timing of the next rate cuts as the Bank battles concerns over economic growth and potential tariffs by United States (US) President Donald Trump’s administration.
Previewing the ECB meeting, TD Securities analysts said: “This decision should be a fairly straightforward cut. Inflation data has been noisy but on net a touch weaker than expected in its December projections. Growth signs show no real signs of improving, either, adding to the soft backdrop.“ “We expect no real change in messaging around this one, but questions about the neutral rate are likely to crop up in the press conference,” the analysts added.
How could the ECB meeting impact EUR/USD?
In the lead-up to the ECB showdown, the EUR/USD pair is hovering near last Friday’s five-week high of 1.0522. The pair’s further upside remains dependent on the outlook of ECB interest rates.
ECB President Christine Lagarde is expected to maintain the rhetoric that the Bank is not on any pre-determined path on interest rates and will likely remain data-dependent. Lagarde could also reiterate her view of “gradual moves in rates”. In such a scenario, EUR/USD is set to extend the recovery momentum. However, the main currency pair could witness a fresh downtrend if Lagarde mentions that a 50 bps rate cut was discussed as an option in the meeting or expresses concerns over the economic prospects.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD:
“Despite EUR/USD’s recent corrective decline, the pair remains poised for further recovery as the Relative Strength Index (RSI) indicator managed to defend the 50 level on the daily chart. If buyers recapture the 50-day Simple Moving Average (SMA) at 1.0422 on a sustained basis, EUR/USD could make another run toward the 1.0500 level. Further up, the six-week high of 1.0533 will be challenged.”
“If the downside regains traction, the immediate support of the 21-day SMA at 1.0355 will be tested. A fresh sell-off could be seen below that level, opening doors toward the 1.0300 round level. The last line of defense for EUR/USD buyers is seen at the January 17 low of 1.0265.”
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
