What to expect
Markets are widely expecting a rate cut from 3.50% to 3.25% this Thursday at 15:15. All eyes will then shift to the ECB’s press conference at 15:45 for any indications of further rate cuts. CNBC reports that markets are already factoring in a potential cut to 3% by year-end as inflation risks ease. However, the central bank’s tone could trigger significant volatility in EUR markets.
Hawkish comments may provide support to the Euro. Dovish hints about future rate cuts could apply downward pressure on the currency.
Market insights from the previous meeting
At its September meeting, the ECB lowered the interest rate by 25 basis points, as expected. With the rate cut already priced in, the Euro strengthened against other currencies. In just over an hour after the announcement, the following currency pairs surged:
What is the significance to the market?
The ECB’s benchmark interest rate, set by the Governing Council, plays a crucial role in maintaining price stability, targeting inflation below but near 2% over the medium term. In times of low inflation and low interest rates, the ECB may also adopt non-standard tools, such as asset purchase programmes. The official rate, the main refinancing operations rate, is key for traders.