ECB raised rates, but the euro remained under pressure

On the morning of Friday, 11 September, the EUR/USD pair is trading in a narrow range of 1.1600-1.1618 dollars. The euro is ending the week amid increased volatility on the global currency market.

The main event of recent days was the European Central Bank meeting, which on 10 September raised all three key interest rates by 0.25 percentage points. The deposit rate is now 2.50%, and the main refinancing operations rate is 2.65%. The currency market reaction was quite restrained. The euro-to-dollar exchange rate slightly decreased after the ECB decision: on 10 September, the official ECB reference rate was about 1.1616 dollars per euro, compared with about 1.1652 dollars a day earlier.

Why did the rate hike not lead to a euro rise? The ECB rate hike was already largely priced into market expectations. Therefore, investors were primarily interested in whether the European regulator is ready to continue tightening monetary policy.

The ECB explained its decision by the need to fight accelerating inflation, which remains significantly above the 2% target level. The regulator forecasts average inflation in the euro area at 3% in 2026 and 2.5% in 2027. At the same time, the economic growth forecast was raised to 0.9% for 2026 and 1.4% for 2027.

The ECB also stressed that further decisions will be made on a meeting-by-meeting basis, based on incoming economic data. In other words, the regulator did not give a clear promise to continue raising rates.

One of the main factors of uncertainty remains the situation in the Middle East. Rising oil and gas prices add to inflationary pressure in Europe. According to Reuters, the Brent price on Friday rose to about 109 dollars per barrel. At the same time, government bond yields increased, and investors became more cautious about risky assets.

For the euro, this is a dual factor. On one hand, high inflation forces the ECB to maintain a tight monetary policy, which supports the European currency. On the other hand, excessively expensive energy resources increase the costs of European companies and households and can slow economic growth.

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