The European Central Bank kept interest rates high, but the euro was weighed down by speculation of a downturn in the months ahead.

The euro struggled in trading on Thursday (25/January). EUR/USD weakened around 0.5% to 1.0830s. EUR/GBP is wallowing at a five-month low. The European Central Bank (ECB) kept interest rates high in its policy meeting this afternoon, but market participants focused more on the rumors of when rate cuts will begin.

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The ECB confirmed that interest rates will remain at 4% for some time. ECB President Christine Lagarde reiterated in her press conference that they will only consider a rate cut once they are confident that the inflation rate reaches the 2% target on a sustainable basis.

The Eurozone's inflation rate is currently above the target, so it is not time to discuss rate cuts. As stated by Lagarde in Davos last week, the ECB will only start discussing the issue of interest rate cuts in the summer.

Market participants differed in their response to Lagarde's statement. Some believe that the ECB will start lowering interest rates next summer. However, others doubt the ECB's ability to maintain high interest rates amid the recent economic setbacks in the Eurozone.

"Although President Lagarde 'stands by' her previous comments which suggested that summer cuts are likely, the rest of her narrative appears to be supportive of earlier rate cuts," says Seema Shah, chief global strategist at Principal Asset Management.

"The ECB is clearly data dependent, but the data they focus on are pointing to a rate cut within the next few months, potentially April. Summer might come early this year," adds Shah.

As a result, today's ECB policy announcement failed to boost the euro rate or interest rate expectations. Market data instead showed an increase in the odds from around 80% to 90% for the scenario of an ECB rate cut starting next April.