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With the ECB unanimously expected to leave rates unchanged ahead of today’s policy rate announcement, all eyes were on President Lagarde and whether she would declare an end to the Bank’s easing cycle.
We think today’s events delivered on both counts. The Governing Council left the deposit facility rate untouched at 2.00%. President Lagarde declared that “The disinflationary process is over.” Taken together, that looks rather like the ECB is now done with rate cuts, which, if true, should prove a boon for the euro over the coming months.
Ahead of today’s announcement, some speculation had persisted around the potential for a final 25bp cut, likely in December. That pricing has now faded, albeit not entirely, on the back of Lagarde’s comments.
It is worth noting that the remainder of today’s event offered little other material change to the Bank’s guidance. The ECB’s assessment of the inflation outlook received only minor tweaks, with President Lagarde downplaying these in her press conference. Similarly, structural and political risks — including France’s government collapse and Trump’s tariff shock — continue to loom in the background. But recent months have seen greater signs of resilience across eurozone data, and uncertainty around the outlook has eased. It is this last fact that we suspect has nudged President Lagarde into today’s declaration of victory.
Granted, this does not preclude any future policy adjustments, but that is clearly not now the base case moving forward in our view.
For FX markets, the implications are modestly euro-supportive with US rate cuts still priced in, and the ECB now seen on prolonged hold. Unless eurozone data deteriorates or US data surprises to the upside, we still expect the euro to gain versus the dollar in Q4 and 2026.
Authors:
Nick Rees, Head of Macro Research
Barry van der Laan MBA, Senior FX Market Strategist