The European Central Bank is expected to raise its deposit rate by 25 basis points to 2.50% on Thursday, a move that is fully priced by money markets and unanimously forecast by the 65 economists surveyed by Reuters. The focus, however, lies in the ECB’s guidance: traders are watching to see whether President Christine Lagarde will characterize September as the final hike or leave the door open to further tightening.
According to the analysis, economists see 2.50% as the peak for 2026, with 78% expecting the rate to stay there through mid‑2027, while market pricing implies a deposit rate near 3.00% by June 2027, which would require two additional increases. Deutsche Bank aligns with the market view, anticipating another hike in December and has lifted its euro‑area growth forecasts for 2026 and 2027 by 0.3 and 0.1 percentage points to 0.8% and 1.2% respectively.
The ECB’s tightening cycle began in June 2026 with its first rate increase in three years, driven by rising energy prices and persistent inflation. The July pause was described in the minutes as not signalling the end of the cycle, and policymakers wanted to keep the September decision open. Euro‑area flash inflation accelerated to 3.3% in August from 2.9% in July, the highest reading since September 2023, with energy prices again the main driver.
On the dollar side, US non‑farm payrolls rose 162,000 in August, well above the forecast of around 56,000, while unemployment held steady at 4.1%. The strong labour report pushed the probability of a September Federal Reserve rate hike to about 58%, up from roughly 52% before the release, reducing the need for the Fed to support growth and keeping inflation as the primary concern.
Technically, EUR/USD has been consolidating after an August rebound, trading above its 20‑day and 100‑day moving averages but failing to break above the 1.1655‑1.1680 resistance zone. Key resistance levels are 1.1640‑1.1655 (near‑term objective) and 1.1680 (late‑August recovery high). Support is seen at 1.1600 (immediate pivot), 1.1565‑1.1580 (early‑September floor), 1.1525 and 1.1510 (deeper reference levels). The pair’s recent close above 1.1600 has defended pivotal support for a second week, a constructive sign, though the inability to sustain gains above 1.1655 keeps the range bound.
The analysis outlines a bullish scenario for the period 8‑19 September: if the ECB leaves the door open to further tightening and US inflation data comes in soft enough to trim Fed hike odds, a daily close above 1.1655 would confirm the near‑term target, with 1.1680 as the next barrier. This view would be invalidated by a return below 1.1620, and a close beneath 1.1580 would nullify the scenario.
Conversely, a bearish case gains traction if the ECB signals that September completes the tightening cycle, forcing market pricing to unwind toward the economist consensus, or if US CPI surprises to the upside and pushes Fed odds decisively above 58%. A close beneath 1.1580 would open the path to 1.1525, with 1.1510 as the level that would invalidate the August recovery. The bearish view would be challenged by a sustained close above 1.1655.
The analysis notes that, with both central banks tightening, the usual divergence framework does not apply; instead, the pair moves on relative pace and guidance. Consequently, Thursday’s ECB press conference carries more weight than the rate decision itself, as markets price the future path of policy rather than the immediate move.
