ECB Leaves Interest Rates Unchanged

Key Insights

• ECB left the interest rate unchanged at 4.5%. 
• The central bank signaled that interest rates have reached sufficiently restrictive levels. 
• EUR/USD tested new highs today as traders remained focused on dovish Fed. 

On December 14, ECB released its Interest Rate Decision. The central bank decided to keep interest rates unchanged, in line with the analyst consensus.

Current economic projections imply headline inflation of 5.4% in 2023, 2.7% in 2024, and 2.1% in 2025. The economic growth remains under pressure due to high interest rates, but Eurosystem staff expects that growth would increase from 0.6% in 2023 to 0.8% in 2024.

ECB commented: “Based on its current assessment, the Governing Council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal.”

Put simply, ECB believes that the rate hike cycle has come to an end. This is not surprising as inflation is falling due to the disappointing economic performance in the Eurozone.

EUR/USD continued to move higher after the release of the ECB decision. Traders bet that Fed would cut rates aggressively, which is bearish for the American currency.

Gold settled near the $2035 level as traders focused on dovish central banks. Fed and ECB signaled the end of rate hike cycles, which is bullish for gold and other precious metals.

DAX pulled back from session highs as traders took profits after the strong rally from October lows.

For a look at all of today’s economic events, check out our economic calendar.