The European Central Bank (ECB) has decided to keep its key policy rates unchanged, including the deposit rate at 2%, reflecting a consensus among market analysts. ECB President Christine Lagarde is set to address the implications of this decision, particularly in light of rising risks to economic growth and inflation due to geopolitical tensions in the Middle East, which have driven energy prices higher and dampened economic sentiment.

This decision comes as recent data indicates a slowdown in the Eurozone’s growth, with quarterly GDP growth dropping from 0.2% to 0.1%. Business confidence is waning, influenced by longer delivery times and increased input costs, while higher energy prices are eroding real incomes and consumer spending. Despite the ECB’s commitment to a data-dependent approach, Lagarde acknowledged that the prolonged conflict in the Middle East could exacerbate inflationary pressures, although long-term inflation expectations remain aligned with the ECB’s 2% target.

Market professionals should note that while the ECB has opted for a rate hold, discussions around potential rate hikes were extensive, indicating a shift in sentiment. The EURUSD is attempting to recover above 1.1700, reflecting market reactions to Lagarde’s comments on future rate considerations.

Source: xtb.com