The European Central Bank raised its deposit rate to 2.50% on Thursday, but the more important move for currency traders came after the decision, when President Christine Lagarde refused to validate a specific path for the additional tightening already embedded in European rates.
The 25-basis-point increase itself contained almost no surprise. All 65 economists in a Reuters poll conducted between August 31 and September 3 had forecast the deposit rate would rise from 2.25% to 2.50%, leaving the press conference and the path beyond September as the real event for EUR/USD.
The ECB also lifted the main refinancing rate to 2.65% and the marginal lending facility to 2.90%. Importantly, those new rates take effect on September 16, rather than immediately. The previous 2.25%, 2.40% and 2.65% levels had been effective since June 17.
The Hike Was Already in the Price
The ECB said the Middle East conflict continued to generate inflation pressure and that inflation was likely to remain “well above target for an extended period.”
That concern is visible in the latest data. Euro-area headline inflation accelerated to 3.3% in August from 2.9% in July, while annual energy inflation jumped to 14.3% from 10.3%. Core inflation excluding energy and food actually eased to 2.4% from 2.5%, highlighting how much of the renewed inflation problem is still being driven by energy.
The central bank’s newly published staff projections now put headline inflation at 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028. Those are the official ECB numbers, replacing the preliminary figures circulating before the meeting. Growth is projected at 0.9% this year, 1.4% in 2027 and 1.5% in 2028.
Lagarde Refused to Pre-Commit to October
For the euro, the crucial language was not about Thursday’s hike but what comes next.
Lagarde repeated that policy would be determined on a “data-dependent and meeting-by-meeting” basis and said the Governing Council was “not pre-committing to a particular rate path.” She later said she could not anticipate what the ECB would do at its October 29 meeting.
That was less guidance than a rates market already positioned for several more increases might have wanted.
Before the decision, Deutsche Bank calculations cited by FXStreet showed around 86 basis points of tightening priced through June 2027, including Thursday’s expected 25-basis-point move. Afterward, Reuters reported traders were pricing about another 60 basis points by April 2027.
The curve therefore did not abandon the tightening story. It simply got no explicit confirmation from Lagarde that October would be the next step.
EUR/USD Fell First, Then Recovered
The immediate FX reaction captured that distinction.
EUR/USD had traded around 1.1640 before the decision. Reuters reported that the euro dropped immediately afterward and was later down 0.19% at $1.1612 against the dollar.
The move was not sustained through the entire session. Later market data showed EUR/USD recovering back toward the mid-$1.16 area, while the dollar also received support from U.S. producer-price data and rising expectations around Federal Reserve policy.
That makes Thursday less a simple “dovish hike” than a separation between two trades. The ECB delivered the fully priced 25 basis points, Lagarde declined to promise the next one, and the euro initially lost the rate-support premium traders had built into the meeting.
The next EUR/USD move now depends less on the rate that becomes effective September 16 and more on whether incoming inflation and energy data force the ECB to turn the market’s remaining 60 basis points into actual hikes.