- The European Central Bank is expected to cut benchmark interest rates by 25 bps at the October policy meeting.
- ECB President Christine Lagarde’s presser will be closely scrutinized for fresh policy cues.
- The ECB policy announcements are set to inject volatility around the EUR/USD pair.
The European Central Bank (ECB) interest rate decision will be announced following the October monetary policy meeting at 12:15 GMT on Thursday.
ECB President Christine Lagarde's press conference will follow, beginning at 12:45 GMT, where she will deliver the prepared statement on monetary policy and respond to media questions. The ECB announcements are likely to ramp up the Euro (EUR) volatility.
What to expect from the European Central Bank interest rate decision?
Following the September policy meeting, the ECB decided to lower the interest rate on the marginal lending facility to 3.9% from 4.5% and the deposit facility, also known as the benchmark interest rate, by 25 basis points (bps) to 3.5%. The ECB also cut the interest rate on the main refinancing operations by 60 bps to 3.65%.
The ECB is widely expected to lower the deposit facility rate by another 25 bps to 3.25% after the October meeting.
In the post-meeting press conference, President Lagarde refrained from offering any clues regarding the timing of the next rate cut, saying that there was a relatively short time to the October meeting and adding that they have no commitment of any kind.
However, after the data published by Eurostat showed that the annual Harmonized Index of Consumer Prices (HICP) softened to 1.8% in September from 2.2% in August, investors started to lean toward an additional policy-easing step in October.
According to Reuters, over 90% of economists polled expect a 25 bps cut after September's inflation dipped below the ECB’s target of 2%. Furthermore, most of those surveyed expect another 25 bps reduction in key rates in December.
Previewing the October ECB event, “data has rapidly moved against the ECB's September messaging, and we and the market now expect a 25bps rate cut at the October meeting,” said TD Securities analysts.
“Governing Council members have opened the door wide open to a cut as well. The messaging of a ‘meeting-by-meeting’ approach to policy is likely to remain, but Lagarde is unlikely to steer away from a December cut,” they added.
How could the ECB meeting impact EUR/USD?
After losing more than 1.5% against the US Dollar (USD) in the first week of October, the Euro has broadly stabilized. Heading into the ECB showdown, EUR/USD stays in a consolidation phase below 1.1000.
ECB President Christine Lagarde is likely to stick to the bank’s data-dependent stance and refrain from giving a certain response on the next rate cut move. In case she reiterates the ECB expectation of inflation rising again in the latter part of the year, investors could see this as a sign of the ECB holding interest rates unchanged at the last policy meeting of the year on December 12. In this scenario, the immediate reaction could be positive for the Euro.
Conversely, the Euro could come under renewed selling pressure if the policy statement, or Lagarde, voices growing concerns over a worsening economic outlook in the Eurozone, while acknowledging better-than-forecast progress in disinflation. In the revised projections, ECB staff saw inflation at 2.5% in 2024 and 2.2% in 2025.
Moreover, the accounts of the ECB’s September meeting showed that policymakers noted that negative surprises in the Purchasing Managers Index (PMI) manufacturing output readings and weakening foreign demand indicated potential headwinds to the near-term outlook.
Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD:
“The near-term technical points to a bearish bias for EUR/USD. The Relative Strength Index (RSI) indicator on the daily chart stays in the bearish territory well below 50, while holding above 30, suggesting that the pair has more room on the downside before turning technically oversold.”
“The Fibonacci 61.8% retracement level of the July-September uptrend and the 200-day Simple Moving Average (SMA) form strong support at 1.0870 ahead of 1.0800 (Fibonacci 78.6% retracement) and 1.0680 (beginning point of the uptrend). On the upside, 1.1000 (Fibonacci 38.2% retracement) aligns as key resistance before 1.1060-1.1080 (50-day SMA, Fibonacci 23.6% retracement) and 1.1200 (end point of the uptrend)."
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD stays cautious near 1.0850, as ECB rate decision looms
EUR/USD trades with caution near 1.0850 in the European session on Thursday. The recent US Dollar strength and a softer risk tone weigh on the pair. Meanwhile, the Euro remains vulnerable ahead of the ECB policy announcements.
GBP/USD treads water below 1.3000 amid cautious mood
GBP/USD consolidates Wednesday’s softer UK CPI-inspired fall below 1.3000. Bets for a BoE rate cut in November weigh on the pair amid the sustained US Dollar strength. Hopes for a less aggressive Fed policy easing favor the USD bulls ahead of the US Retail Sales data.
Gold price bulls retain control near record high, looks to US data for fresh impetus
Gold price prolongs its one-week-old uptrend for the third straight day and touches a fresh all-time peak, around the $2,685-2,686 region during the early European session on Thursday.
European Central Bank set to trim interest rates again as economic outlook worsens
The European Central Bank is expected to cut benchmark interest rates by 25 bps at the October policy meeting. ECB President Christine Lagarde’s presser will be closely scrutinized for fresh policy cues.
Another unconvincing policy briefing fails to inspire confidence
Chinese authorities are playing the long game, trying to keep investors focused on the bigger picture, multiple stimulus measures spread out over time, with a bit of subtle bid support from state-backed institutions.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.