Euro turns lower after ECB delivered 50bps hike
The ECB has indicated that further normalisation of interest rates “will be appropriate.”
Share this:
As mentioned earlier, there was a great deal of uncertainty over whether the European Central Bank would opt for a 25- or 50-basis point rate hike today, which meant that the euro would move sharply based on the decision as the market was unsure.
As mentioned earlier, there was a great deal of uncertainty over whether the European Central Bank would opt for a 25- or 50-basis point rate hike today, which meant that the euro would move sharply based on the decision as the market was unsure.
Well, the euro surged higher after the ECB decided to hike the main deposit rate by 50 bp to zero, and introduced a new tool to counter “unwarranted, disorderly market dynamics.” But during the press conference, all of those gains evaporated.
The ECB has indicated that further normalisation of interest rates “will be appropriate.”
Some would argue that it was a bit careless on their part to hike by 50 bps given that their communication all this time was for 25 bps. But what really changed that decision was threefold:
- First, the recent weakness of the euro meant that the eurozone was now importing more inflation than would have been the case had the single currency been stronger. This definitely encouraged the hawks to push for a 50 bp hike today.
- Second, Eurozone CPI climbed to a fresh record high of 8.6% YoY in June, accelerating sharply from 8.1% in May. They simply cannot afford to just sit there and watch inflation continue to accelerate.
- Third, all other central banks opted for larger increases than expected. The ECB had to surprise, otherwise the euro would have plunged – and they couldn’t risk that.
So, it was a case of common sense prevailing. Lagarde didn't try to put a bit of a dovish spin on that when she started the ECB press conference, although the euro lost all its previous gains when she was pressed about the new policy tool - Transmission Protection Instrument. .
At her press conference, President Lagarde confirmed that all countries will be eligible for TPI, and these are the four country criteria to be entitled:
1. Compliance with EU fiscal rules
2. Absence of severe macro imbalances
3. Fiscal/debt sustainability
4. Sound and sustainable macro policies
The ECB is now effectively deciding which country is fiscally solvent with sound policies. It is a dangerous territory to be stepping into. What about Italy? Will it be meeting these criteria? This may worry stock markets and send the major indices lower.
The EUR/USD rose along with the other euro pairs, most notably the EUR/JPY, before dropping during the ECB press conference.
How to trade with City Index
You can trade with City Index by following these four easy steps:
- Open an account, or log in if you’re already a customer
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
- Search for the company you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
Related tags:
Latest market news
The complete CFD trading experience
Award-winning platforms, competitive spreads, low commissions and dedicated support.
We live and breathe the markets and are dedicated to helping traders realise their ambitions as we continue to set the industry bar.
Economic calendar
Web Trader platform
Our sophisticated web-based platform is packed with features.
Related articles
Gold Q4 2026 outlook: Resilience in the face of rallying dollar and yields
As we headed towards the latter stages of Q3 and into Q4, the Fed had just hiked rates in a hawkish FOMC meeting, while the likes of the ECB and BoJ had also tightened their respective policies. Oil prices remained elevated amid the prolonged US-Iran conflict. Meanwhile, bond yields were breaking out, and the dollar was higher across the board. Yet, remarkably, gold was still holding in the positive territory for the third quarter, even if it had weakened somewhat in September.
EUR/USD Q4 2026 Outlook: Euro at a Crossroads as Fed, ECB Tighten 9 25 2026
EUR/USD enters Q4 at a pivotal inflection point as competing Fed-ECB policy paths and persistent inflation risks collide with major technical support.
USD/JPY Q4 2026 Outlook: Hawkish Fed Pricing Clashes With Intervention Risk
The year-end tug-of-war is clear: hawkish Fed pricing supports USD/JPY, while intervention risk limits the upside.
StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation.
StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.