The European Central Bank (ECB) is holding a two-day meeting and will announce its monetary policy decision on Thursday. Most experts predict that the ECB will keep interest rates unchanged for the fifth consecutive meeting, maintaining the key Capital rate, the marginal lending rate, and the deposit rate at 2.15%, 2.4%, and 2%, respectively.
ECB President Christine Lagarde will also hold a press conference afterward to explain the reasoning behind the policymakers' decision.
Prior to this announcement, the EUR/USD exchange rate was trading above 1.1800, stabilizing after a sharp drop from its January peak of 1.2082.
What could be the consequences of the ECB's interest rate decision?
The ECB is in a favorable position and is expected to maintain this stance, without taking any further action on monetary policy. After post-pandemic inflation peaked and pushed interest rates to their highest levels in decades, the ECB was one of the first major central banks to cut interest rates. The key message recently emphasized by President Christine Lagarde is that monetary policy is currently in a “good position” and this is expected to be repeated this time.
At its December meeting, the Governing Council decided to keep interest rates unchanged without giving any new indications of the next steps. As ING noted: “The minutes of the ECB’s December meeting show that the ECB is maintaining a wait-and-see approach in a macroeconomic environment where the underlying scenario is quite positive, but risks remain unusually high.”
During this time, macroeconomic data released over the past few months has further reinforced the authorities' view. The Eurozone economy has not only maintained stability but has also begun to show signs of improvement.
According to the latest data from Eurostat, the European Union ( EU ) grew by 0.3% year-on-quarter in the three months ending in December, while its Gross Domestic Product (GDP) in 2025 increased by 1.6% year-on-year.
Meanwhile, inflation in January fell as predicted. Eurostat reported that the region's Harmonized Consumer Price Index (HICP) rose 1.7% year-on-year, lower than the 1.9% in December. The core HICP – which excludes volatile components such as food and energy – rose 2.3%, the same as the previous month.
It is noteworthy that, following the ECB's last Governing Council meeting, President Lagarde stressed that monetary policy being in a "good position" does not mean interest rates will follow a fixed or predictable direction. She also emphasized the ECB's flexible approach, assessing each meeting individually.
In this context, the ECB's upcoming monetary policy decision is unlikely to come as a surprise. Most believe the ECB will maintain a cautious stance, and President Lagarde will continue to emphasize that the ECB remains in a wait-and-see phase, closely observing economic developments without locking into any specific monetary path.
How might the ECB meeting affect EUR/USD?
The EUR/USD exchange rate is holding steady above 1.1800 ahead of the decision announcement, after significant volatility over the past two weeks. The pair is currently trading about 300 pips lower than its recent peak, but still retains much of its upward momentum from the beginning of 2025.
According to FXStreet expert Valeria Bednarik: “Technically, the downside potential for EUR/USD appears to be fairly well limited. On the daily chart, the pair remains above all moving Medium , with the 20-day simple moving Medium (SMA) trending upwards and above the 100- and 200-day SMAs, creating support around 1.1760. At the same time, technical indicators have recovered after touching near the midpoint, suggesting uneven upward momentum at the time of writing.”
Bednarik added: “Earlier this week, EUR/USD Dip around 1.1775, making the 1.1760-1.1770 area a potential downside barrier. A drop below this area would pave the way to 1.1700, then to 1.1640. Buyers will wait for the price to break above 1.1920 before opening a long position, aiming to challenge the 1.2000 mark.”
