The ECB did not discuss rate cuts at all in today's meeting, contrary to market speculation and the Fed's stance. Consequently, the EUR/USD is getting stronger.

The European Central Bank (ECB) persisted in keeping interest rates at high levels while dismissing any speculation around a rate cut. This more hawkish stance than the Fed triggered EUR/USD to soar by more than 1% to the 1.1000 range.

eurusd

Today's ECB policy meeting (14/December) decided to keep interest rates at their current level. It retained the phrase "interest rates will be set at moderately tight levels for as long as necessary" in its policy guidelines.

The ECB's projections show a slow decline in inflation and it will only approach the target as we enter 2025. The Eurozone inflation forecast for 2023 is 5.4%, 2024 is 2.7%, and 2025 is 2.1%.

EUR/USD has rallied since the Asian session due to the Fed's overly dovish interest rate announcement, then rallied even more rapidly in light of the ECB's series of statements. The euro's performance against some other majors - particularly the yen and sterling - has been relatively more moderate. This is because there is a very noticeable gap between the policy guidance of the US Federal Reserve and the ECB.

Fed Chairman Jerome Powell in the early hours of this morning indirectly agreed with market speculation about an interest rate cut in 2024. On the other hand, ECB President Christine Lagarde emphasized that the Governing Council "did not discuss cutting interest rates at all" at today's meeting.

"The end of rate hikes is here," said Carsten Brzeski, Global Head of Macro at ING, "(But) for now, we still think that the ECB's shift to a fully dovish stance will be more gradual than markets expect."

"It is hard to see how the ECB would decide to change interest rate policy completely just because of some weaker-than-expected inflation data, whereas headline inflation has not fallen below 2% and the long-term inflation forecast still remains around 2%," Brzeski added.