ECB to leave rates unchanged as Eurozone set to enjoy strong 2026

The ECB will no doubt leave rates unchanged for the fourth consecutive meeting on Thursday. We don’t think that President Lagarde will stray too far from her October messaging, reiterating that policy is in a “good place”. Attention will be on the updated economic outlook, with Lagarde strongly hinting at an upward revision to the growth forecasts.

Economic activity data suggests that the Euro Area economy has turned the corner, with 2026 poised to be a year of economic recovery and contained inflation. We now think that the next move in ECB rates will be higher, rather than lower, but we could be waiting a while. It also appears far too early for the divided Governing Council to drop any direct hints about future hikes, although the updated projections and rhetoric on the economic outlook will be viewed through this lens. 

An upbeat tone on growth may provide some support for the euro on Thursday. Yet, given market expectations and the extent of the recent euro rally, we think that any gains will be contained. A more toned-down message may, conversely, result in some profit-taking.