The ECB raised rates 25 bps this week, taking the deposit rate from 2.25% → 2.50%.
Why? Inflation.
The ECB now forecasts:
2026 inflation: 3.0%
2027: 2.5%
2028: 2.1%
Higher energy prices are keeping inflation elevated, while the economy is holding up. The ECB upgraded 2026 GDP growth to 0.9% and 2027 to 1.4%.
Euro Reaction
Despite the hike, the euro didn’t rally.
EUR/USD: ~$1.164 before ECB → ~$1.160
EUR/GBP: ~£0.858
EUR/JPY: fell ~0.6% Friday to ¥178.22
Why?
The ECB isn’t tightening alone. Markets are also repricing Fed, BOE and BOJ policy as higher energy prices threaten global inflation.
The takeaway: A 25-bp ECB hike wasn’t enough to strengthen the euro. FX markets are now focused on relative rates—which central bank hikes fastest, and which economy can handle it.