When is the European Central Bank (ECB) rate decision and how could it affect EUR/USD?

ECB monetary policy decision – Overview

The European Central Bank (ECB) is scheduled to announce its monetary policy decision this Thursday at 13:15 GMT, which will be followed by the post-meeting press conference at 13:45 GMT. The minutes of the ECB’s October meeting backed the case for a dovish shift. That said, the recent comments by ECB officials cast doubt on whether the central bank will actually slow its rate-hiking cycle. The current market pricing, meanwhile, assigns a circa 87% chance of a 50 bps lift-off at the end of the December policy meeting. The ECB is also expected to announce quantitative tightening, though the details may only come later, probably at the February meeting. Apart from this, the new economic projections and ECB President Christine Lagarde's comments will be watched closely for clues about the central bank's view on the future policy path.

Analysts at Commerzbank offer a brief preview of the event and write: “The ECB is unlikely to decide on another jumbo rate step of 75 bps but instead opt for 50 bps. This is supported by quite a few statements by members of the ECB Council. The ECB's updated inflation projections also argue for a slower pace of rate hikes. Although it is likely to adjust its short-term projection up again, we expect the projections for headline inflation to remain virtually unchanged in the medium term; the 2025 forecast published for the first time is even likely to be below 2%. The ECB is unlikely to raise its inflation projections because future prices for natural gas (which the bank uses as a technical assumption) have fallen massively since the September projection.”

How could it affect EUR/USD?

Ahead of the key central bank event risk, a goodish US Dollar recovery from a multi-month low prompts some selling around the EUR/USD pair. Given that a 50 bps rate hike is already priced in, markets could react negatively to the expected move. Conversely, a surprise 75 bps rate hike and a hawkish ECB commentary should be enough to provide a strong boost to the shared currency. Nevertheless, the announcement should infuse some volatility around the Euro crosses.

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and writes: “EUR/USD dropped below the mid-point of the ascending regression channel and the Relative Strength ındex (RSI) indicator on the four-hour chart declined toward 50, pointing to a loss of bullish momentum.”

Eren also outlined important technical levels to trade the EURUSD pair: “On the downside, 1.0600 (20-period Simple Moving Average (SMA) on the four-hour chart, psychological level) aligns as interim support ahead of 1.0580 (lower limit of the ascending channel). In case EUR/USD drops below the latter and fails to reclaim it, it could extend its slide toward 1.0550 (50-period SMA) and 1.0500 (psychological level).”

“1.0630 (mid-point of the ascending channel) forms initial resistance. If EUR/USD manages to stabilize above that level, it could target 1.0660 (upper limit of the ascending channel) and 1.0700 (psychological level, static level),” Eren adds further.

Key Notes

   •  ECB Preview: Five reasons to expect Lagarde to lift the Euro with a hawkish hike

   •  EUR/USD Forecast: Euro to target fresh multi-month highs on a hawkish ECB

   •  EUR/USD: Only a 75 bps hike by ECB and hawkish surprise from QT discussions will drive a large reaction – ING

About the ECB interest rate decision

ECB Interest Rate Decision is announced by the European Central Bank. Usually, if the ECB is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the EUR. Likewise, if the ECB has a dovish view on the European economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.