FX.co ★ ECB to Hold Rates, Outlook Clouded by Strong Euro

The European Central Bank (ECB) is anticipated to maintain its current interest rates during its upcoming meeting on Thursday. This decision is influenced by considerations of the strengthening euro and the influx of low-cost Chinese imports, both of which have significant implications for the inflation forecast. On Wednesday, new data revealed that inflation within the eurozone decreased to 1.7% in January, marking the lowest point since September 2024, with core inflation unexpectedly dropping to 2.2%, the lowest since October 2021. The ECB has kept its policy unchanged since June, and market analysts project minimal short-term adjustments. This outlook is supported by signs of robustness in the eurozone economy and inflation figures aligning closely with targets. President Christine Lagarde is expected to emphasize that the current policy position remains favorable. Nonetheless, recent gains in the euro's value have raised concerns among members of the Governing Council. Austria’s Martin Kocher has cautioned that further increases in the euro's value might compel the ECB to consider rate cuts. Meanwhile, France’s François Villeroy de Galhau has identified the recent depreciation of the dollar as a significant factor influencing the bank's future strategy.