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ECB seen holding rates steady as markets await September path signals
After a downside surprise in inflation and lower near-term oil futures, markets are pricing about 22bp of potential ECB hikes for September.
Action Forex expects the European Central Bank to keep policy rates unchanged at its July meeting, with the deposit rate remaining at 2.25% and the decision aligned with market pricing and consensus expectations. The outlet points to softer inflation since the June meeting, including beyond energy, as well as declines in near-term oil futures.
Action Forex says ECB President Christine Lagarde is likely to maintain “full optionality” on the future rate path, leaving room for a September hike without precommitting. The focus, it adds, will be on the ECB’s signals for the inflation and growth outlook, especially since the ECB will receive new staff projections at the September meeting.
The preview notes the ECB’s view that inflation risks remain tilted to the upside while growth risks are tilted to the downside, and that the balance may now be “more balanced” following Lagarde’s 1 July comments. Still, the outlet does not expect that risk assessment to shift ahead of September due to the lack of new staff projections and the ongoing uncertainty.
Action Forex also cites the backdrop for energy and expectations, including crude oil futures declines and refined products and natural gas prices remaining elevated versus pre-war levels, with gasoline up 10% and natural gas up 170%. It adds that markets are pricing average inflation of 3.25% year over year for the rest of 2026 and 2.65% for 2027, while weaker growth in Q2 and a weakening labor market lead the outlet to expect no more than one additional hike, followed by a potential cut of the deposit rate back to 2.00% next year.
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