European Central Bank: Holds fire as September stays live – TD Securities
TD Securities strategists expect the European Central Bank (ECB) to keep the deposit rate at 2.25% in July after June’s hike, with September remaining a live meeting. They highlight weaker Euro area growth, easing inflation versus projections, and continued data-dependent guidance, suggesting limited near-term impact on EUR/USD from this week’s decision.
Muted reaction expected to July ECB
"After hiking in June, we expect the ECB to leave policy on hold. A September hike is likely to be left on the cards in the press conference, but with little concrete guidance."
"We expect the ECB to leave the deposit rate unchanged at 2.25%, following June's 25bps increase - its first rate hike since 2023. At the previous meeting, policymakers faced a combination of elevated energy prices, rising inflation expectations and staff projections that showed inflation remaining above target at the end of the forecast horizon."
"President Lagarde is likely to reiterate a measured approach in her press conference and suggest that the economic backdrop is now tracking between the Base and Milder scenarios. However, once again, the validity of that looking ahead will be determined by the duration and intensity of the resumed Middle East conflict."
"Base Case (75%) The deposit rate is kept at 2.25% and the statement replays the last several meetings' top hits of "following a data-dependent and meeting-by-meeting approach" and "not pre-committing to a particular rate path". There is little guidance for future meetings, instead predicating impacts and monetary policy reactions on the duration of the Middle East conflict and the energy shock."
"We therefore continue to see scope for one additional hike in September. That would take the deposit rate modestly above our estimate of neutral at 2.25%, moving policy to what we view as the upper bound of the neutral rate range of 2.00% to 2.50%."
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