The European Central Bank is expected to leave borrowing costs unchanged for a fourth consecutive meeting at its last policy gathering of 2025, since policy makers judge that the current policy stance “best suits” the present state of economic affairs.
Inflation across Eurozone virtually met the central bank’s 2% target in November, hovering merely by a tenth of a percent higher, at the 2.1% level, showcasing that the ECB’s tightening campaign has brought the desired results to reality. Given the development, market forecasters went and did what they always do, which is mentally time travel into the future and calibrate that future expectation into present day valuations. The result? Sprouting of forecasts for a reacceleration of inflationary pressures in the foreseeable future, which would destabilize the current state of price pressures and thus force the ECB to hike rates in order to contain it. Evidently, money markets have now started to price in the possibility of a rate hike in the latter stages of 2026, attributing a 30% chance in the scenario.
Besides the decision therefore, of great importance will be the speech from President Lagarde but also the ECB’s outlook for 2026, which will confirm whether forecasters’ rate hike scenario holds any validity and/or whether ECB policymakers see such a possibility becoming reality.
Technical Analysis
EURUSD Chart – The Euro capitalizes on the greenbacks weakness, trading near 2 month highs ahead of ECB’s rate decision
Resistance: 1.1700 (R1), 1.1870 (R2), 1.1970 (R3)
Support: 1.1630 (S1), 1.1500 (S2), 1.1400 (S3)