The European Central Bank (ECB) is widely expected to maintain its policy rates in its upcoming meeting, signaling little appetite for further cuts as the eurozone economy demonstrates resilience amid global trade shocks and stable inflation. Analysts anticipate that the ECB will use its meeting to update growth and inflation forecasts, effectively concluding its monetary easing cycle that saw rates halved from 4% to 2% between mid-2024 and last June.

Eurozone Economy Remains Resilient

Recent data indicates that the 20-country eurozone is performing better than ECB expectations. Exporters have navigated U.S. tariffs more effectively than anticipated, while domestic spending has offset weakness in the manufacturing sector. Industrial output shows signs of stabilization, and sentiment across the bloc is improving.

“The haze of economic uncertainty has somewhat lifted, especially regarding trade. This will give the Governing Council greater confidence that it is in a good spot, likely eliminating any remaining easing bias,” said Lorenzo Codogno, founder of LC Macro Advisors.

Inflation Near ECB Target

Eurozone inflation has hovered around the ECB’s 2% target, largely driven by price increases in the service sector, and is expected to remain stable in the near term. Economists anticipate the ECB will revise up some of its growth and core inflation forecasts for 2026-27, taking into account factors such as German fiscal stimulus and a relatively tight labor market where wages have caught up to post-pandemic price surges.

“A stable labour market, a growing service sector, and German fiscal stimulus will provide a tailwind to the eurozone economy in the coming months,” said Felix Schmidt, senior economist at Berenberg.

Rate Hike Speculation

Despite speculation from some market participants about a potential ECB rate hike in late 2026 or early 2027, most economists expect rates to remain stable through 2026 and 2027, with forecasts ranging between 1.5%-2.5% for the latter year.

“The reality is, the bar is probably quite high for a move in either direction in the next few meetings,” said Isabelle Mateos y Lago, chief economist at BNP Paribas.

ECB President Christine Lagarde is unlikely to signal a rate hike imminently, as idle capacity persists in the manufacturing sector and the eurozone economy still faces global uncertainties.

Euro Outlook

The euro’s exchange rate remains influenced by global factors, including its strength against the Chinese yuan and U.S. dollar. Analysts highlight that while the euro-dollar relationship remains important, the euro-renminbi exchange rate is critical for understanding Europe’s trade competitiveness with China.

Financial markets have already begun pricing modest chances of a rate hike late next year, reflecting ongoing uncertainty. Goldman Sachs expects the euro’s gains to stem largely from U.S. dollar weakness amid slower growth and potential Fed rate cuts, while UBS anticipates limited dollar weakness, projecting a euro decline to $1.14.

Conclusion

The ECB is set to maintain rates and update forecasts, reflecting a resilient eurozone economy, stable inflation, and the positive impact of German government investment. Investors will closely monitor growth and inflation projections, which will shape expectations for monetary policy through 2026 and 2027, as well as the euro’s performance against major global currencies.