Why the ECB Could Fuel the Euro’s Next Big Move

Markets are bracing for a potential 75 basis point cut from the Federal Reserve, but attention is also turning to Europe, where the European Central Bank (ECB) is widely expected to keep policy unchanged.

Consensus points to the ECB holding its key interest rate at 2.15%, with the deposit facility rate also steady at 2%. The decision, due Thursday, comes as inflationary pressures in the eurozone remain contained and policymakers signal little urgency to shift course before 2026.

For currency traders, the divergence between a looser Fed and a steady ECB could prove significant. A more dovish stance in the US relative to Europe suggests capital flows may favour the euro over the dollar, fuelling expectations of further strength in the common currency.

At the same time, the dollar’s broader weakness is being compounded by markets pricing in multiple Fed cuts through year-end. Investors are watching for confirmation in upcoming inflation data, while technical levels in EUR/USD remain in focus for global markets.

If the ECB continues to hold rates while the Fed embarks on easing, analysts see scope for the euro to extend gains against the dollar into late 2025.

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