EUR/USD Rises After ECB Maintains Rates and U.S. Inflation Remains Mixed

Summary:

The euro rebounded sharply against the dollar on Thursday, reclaiming the 1.1700 level after the ECB held rates steady and U.S. inflation data showed mixed signals.

BUY EURUSD

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1.17249

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1.18500

1.16680

1.14329 +0.00038 +0.03%

38.1

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1.16680

1.17630

Exit Price

1.17249

Entry Price

1.18500

The euro staged a strong rebound against the U.S. dollar on Thursday, breaking a two-day losing streak and climbing decisively above the 1.1700 handle as investors weighed the European Central Bank’s (ECB) latest policy decision alongside fresh U.S. inflation data.

The rally underscored how currency traders are carefully reassessing diverging policy paths between Frankfurt and Washington, with both central banks signaling caution but leaning toward different points in the easing cycle.

As widely expected, the ECB kept its key policy rates unchanged. The Main Refinancing Rate remained at 2.15% and the Deposit Facility Rate at 2.00%, leaving borrowing conditions stable after a series of earlier tightening moves. The bank’s policy statement emphasized that inflation is “around the 2% target” and that the overall outlook remains “broadly unchanged.”

However, the projections painted a more nuanced picture. Core inflation — often viewed as a better gauge of persistent price pressures — is now seen at 2.4% in 2025 before gradually declining to 1.9% in 2026 and 1.8% in 2027. That suggests the ECB does not expect inflation to comfortably anchor below target in the medium term, raising the risk of extended restrictive policy if disinflation stalls.

Growth forecasts were also trimmed. The ECB now projects euro area GDP at just 1.0% in 2026, down from previous estimates, while leaving the 2027 outlook steady at 1.3%. This weaker medium-term growth profile reflects lingering structural headwinds — from subdued investment to fragile consumer demand — and leaves policymakers with limited room for maneuver if inflation persists.

ECB President Christine Lagarde reiterated that future policy moves would remain data-dependent, with decisions calibrated on inflation dynamics, macroeconomic developments, and financial conditions. This suggests the central bank is in no rush to pivot toward aggressive easing, even as markets increasingly speculate about rate cuts in 2025.

Across the Atlantic, U.S. inflation data offered a slightly more complicated read. The August Consumer Price Index (CPI) rose 0.4% month-over-month, up from July’s 0.2% and marginally above consensus forecasts of 0.3%. On an annual basis, headline inflation accelerated to 2.9% from 2.7%.

Core CPI — which strips out volatile food and energy prices — remained steady at 0.3% MoM and 3.1% YoY, in line with market expectations. This mix of stable core inflation and a modest uptick in headline prices suggests that while underlying pressures are easing gradually, energy and food-driven volatility continues to complicate the picture.

Markets, however, took the data in stride. Traders interpreted the figures as supportive of the Federal Reserve’s dovish tilt, with rate cut expectations firming further. According to CME’s FedWatch tool, the probability of a 25-basis-point cut in December now stands at 94%, up from 90% prior to the release. Markets are also fully pricing in three rate cuts by the end of 2025.

This divergence between the Fed and ECB outlooks continues to shape EUR/USD flows. While the Fed appears closer to easing, the ECB’s more cautious stance could give the euro some breathing space in the near term — provided Europe’s growth slowdown does not worsen materially.

Technical Analysis

From a technical perspective, EUR/USD is attempting to consolidate its recovery after yesterday’s rally. Thursday’s price action saw a modest intraday correction, largely attributed to overbought conditions on the Relative Strength Index (RSI). The emergence of overlapping negative signals on shorter timeframes hinted at weakening momentum, prompting some traders to lock in profits.

However, the broader technical landscape remains constructive. The pair continues to trade above the 50-day Exponential Moving Average (EMA50), a signal of underlying strength and trend stability. As long as the euro holds above this level, the short-term bullish structure appears intact. Limited pullbacks may serve as healthy retracements, paving the way for further gains if the euro can maintain its grip above the 1.1700 psychological threshold.

TRADE RECOMMENDATION

BUY EURUSUD

ENTRY PRICE: 1.1725

STOP LOSS: 1.1668

TAKE PROFIT: 1.1850

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EUR/USD Rises After ECB Maintains Rates and U.S. Inflation Remains Mixed

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