The European Central Bank (ECB) is scheduled to announce its monetary policy decision on Thursday, following its April meeting. The Frankfurt-based institution is widely expected to keep its key interest rates unchanged, leaving the deposit facility at 2%, a level considered broadly neutral. Recent communications from policymakers, including ECB President Christine Lagarde, suggest that the Governing Council prefers to wait for more data before taking action, particularly given the high uncertainty surrounding the Middle East war and its impact on energy prices.
Christine Lagarde is due to hold a press conference after the decision, which will be closely scrutinized for clues about the policy outlook. Questions are likely to focus on the persistence of the energy shock, the risk of second-round effects on inflation, and the growing signs of a slowdown in economic activity across the Eurozone. The central bank is expected to reiterate its data-dependent and meeting-by-meeting approach, while keeping all options open.
What to expect from the ECB interest rate decision?
The ECB faces an increasingly complex macroeconomic backdrop characterized by a stagflationary shock. On the one hand, rising energy prices linked to geopolitical tensions are pushing headline inflation higher. On the other hand, underlying inflation remains more contained, while forward-looking indicators, such as the Purchasing Managers Index (PMI) surveys, signal a deterioration in economic activity, particularly in the services sector, which fell to 47.4 in April.
The central bank is likely to keep rates unchanged as it awaits greater clarity, but the risk of a June hike is increasing, several analysts note, especially if disruptions in energy supply persist. Deutsche Bank highlights that policymakers are dealing with “double uncertainty” related to both the evolution of the Middle East conflict and the transmission of higher energy prices into broader inflation.
Recent economic data illustrate this dilemma. Headline inflation has risen due to energy costs, while core inflation has edged lower, suggesting limited immediate spillover effects. However, survey figures indicate rising input costs and selling prices, pointing to potential second-round effects. At the same time, growth indicators have weakened, with PMIs slipping into contraction territory and consumer confidence deteriorating.
In this context, the ECB is expected to maintain its “graduated reaction function,” ranging from looking through temporary shocks to implementing measured or more forceful tightening if inflation proves persistent. Most analysts see April as too soon to act, but the central bank will likely preserve a hawkish bias to keep inflation expectations anchored.
Communication will therefore be key. Policymakers are expected to emphasize elevated uncertainty, reaffirm their commitment to price stability, and stress policy optionality. As noted by several institutions, the ECB is likely to adopt a “hawkish hold,” signaling readiness to act without pre-committing to a specific path.
How could the ECB meeting impact EUR/USD?
Ahead of the announcement, markets are largely pricing in a cautious ECB stance but maintaining expectations of policy tightening later this year.
In the near term, the central bank’s impact on the pair may be limited unless it delivers a significant surprise. A clearly hawkish tone, reinforcing expectations of a June rate hike, could support the Euro (EUR) by pushing short-term rate differentials in its favor. Conversely, a more cautious stance or dovish communication could weigh on the common currency, particularly if growth concerns dominate the narrative.
Market pricing currently reflects expectations of around two rate hikes this year. Around 65 basis points of cumulative tightening are priced in by year-end, with a first move likely in June, according to Danske Bank, while ING notes that markets remain firmly anchored around a June liftoff scenario despite the ECB’s cautious stance. Therefore, the key for traders will be how strongly President Lagarde signals the likelihood of such a move. Any indication that second-round inflation effects are building could strengthen the case for tightening and provide support to the Euro.
However, external factors remain crucial. Oil prices, geopolitical developments, and global risk appetite continue to play a dominant role in EUR/USD dynamics. As a result, unless the ECB significantly shifts market expectations, the pair may remain primarily driven by broader macro forces rather than the policy decision alone.
Since early June 2025, the EUR/USD pair has been trading within a broad horizontal range, with no clear trend. In the daily chart, the pair sits just under the 100-day Simple Moving Average (SMA) at 1.1710 while holding above the 200-day SMA at 1.1676 and the 50-day SMA at 1.1650, leaving the near-term tone broadly neutral with a slight constructive bias as long as these underlying averages hold. The Relative Strength Index (RSI) has eased back toward the low-50s, hinting at waning upside momentum after the recent recovery but not yet signalling overbought or oversold conditions.
On the topside, immediate resistance emerges at the 100-day SMA around 1.1710, with a more significant cap aligned with the downward resistance trend line near 1.1823, where the broader corrective structure would be challenged. On the downside, initial support is seen around the 200-day SMA at 1.1676, ahead of the 50-day SMA near 1.1650, where a break would likely expose a deeper pullback and undermine the current mild bullish bias.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
Economic Indicator
ECB Rate On Deposit Facility
One of the European Central Bank’s three key interest rates, the rate on the deposit facility, is the rate at which banks earn interest when they deposit funds with the ECB. It is announced by the European Central Bank at each of its eight scheduled annual meetings.
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Next release:
Thu Apr 30, 2026 12:15
Frequency:
Irregular
Consensus:
2%
Previous:
2%
Source:
European Central Bank