EUR/USD faces the ECB at key support as Lagarde takes centre stage
EUR/USD is testing the base of a long-running range as markets expect the ECB to keep rates unchanged at 2.25%. With Brent near $95, investors will focus on whether Christine Lagarde softens her hawkish tone or keeps inflation risk front and centre.
Market Analyst
ECB expected to pause with deposit rate at 2.25%
The European Central Bank announces its latest monetary policy decision on Thursday 23 July, with the rate decision due at 14:15 CET and Christine Lagarde's press conference following at 14:45 CET.
The market consensus does not expect any change in the ECB's policy rates, leaving the deposit facility rate steady at 2.25%. The same message is visible in the euro short-term rate futures curve, which is pricing a 92% probability of no change at this meeting.
Markets still price further tightening in 2026
The main focus will be Lagarde's press conference. Using the euro short-term rate futures curve as a guide, markets are pricing a high probability of another 25-basis-point increase at the 9 September meeting, as well as a meaningful chance of an additional 25-basis-point rise in December.
European yield curve
European yield curve from the previous ECB meeting to 21 July 2026. Sources: TradingView, Luis Ruiz.
Brent is driving the rate repricing
The recent tightening in the European rates curve is closely linked to the escalation in oil prices. Brent is up more than $20 per barrel, or around 30%, so far this month and is trading around $95 per barrel.
However, seen in a broader context, that recent rebound still leaves Brent within the ECB's baseline scenario. The adverse and severe scenarios, which would push inflation clearly above 3.0%, would require Brent to remain above $100 per barrel on a sustained basis during the third quarter.
Weak growth may limit second-round inflation risks
On the other side of the argument, July inflation data surprised positively, with headline CPI easing to 2.8% and core inflation moderating to 2.4% year on year. That points to a lower sensitivity of inflation to energy-price increases and suggests that second-round risks may be more contained, supported by slower growth in wage costs.
To some extent, the impact of the oil-price rise during the second quarter of 2026 may have been limited by the broader weakness in the economy, reflected in a eurozone composite PMI that moved into contraction territory during the quarter.
EUR/USD reaches the decision at key support
In these circumstances, Lagarde may choose a less hawkish tone than the one used at the previous meeting. If the message softens, the euro could come under pressure through the interest-rate differential. For EUR/USD, that would favour consolidation below 1.1391, a level that has acted as the base of the extended sideways range of recent quarters.
By contrast, if Lagarde shows greater concern about the escalation in oil prices and maintains the hawkish tone of the previous meeting, EUR/USD could attempt to rebound from the base of that range.
EUR/USD and rate differentials
EUR/USD and the six-month EU-US rate differential, weekly chart. Sources: TradingView, Luis Ruiz.
USD strength builds as EUR/USD loses support ahead of PMIs and IFO
Stronger US data and firmer rate expectations are giving the dollar fresh support just as EUR/USD slips below key levels. With flash PMIs and Germany's IFO survey next up, traders are watching to see whether weaker eurozone data confirm the break and widen the macro gap further.
ECB raises rates as Eurozone stagflation risk deepens
The ECB has delivered a 25-basis-point rate rise, but the move lands in an uncomfortable mix of weaker growth and higher inflation projections. With energy costs still driving the shock, the euro and European equities may remain sensitive to every hint on the next rate move.
Sintra panel could test key support in GBP/USD and EUR/USD
The Sintra central-bank panel may sharpen the policy split between the Fed, the Bank of England and the ECB just as oil's retreat eases rate expectations in Europe. If Kevin Warsh stays hawkish while Andrew Bailey and Christine Lagarde sound more cautious, GBP/USD and EUR/USD could come under renewed pressure at key support levels.