Markets now pricing in ECB rate hike but no change expected in 2026

Matthew Ryan, CFA Ebury

The euro received modest support last week due to the absence of serious ECB pushback against and concern about currency appreciation. The meeting was otherwise uneventful, with the ECB sticking to script and offered little forward guidance. Lagarde stressed that policy remains in a “good place” and that risks to both inflation and growth were broadly balanced. While she noted that the bank was monitoring the euro exchange rate, she also played down the recent appreciation.

The January flash inflation report for the Eurozone came out lower than expected, confirming that the ECB is the first major central bank in the G10 to return inflation to its target. This provides the institution further assurance that it can sit on its hands for some time and wait for developments to unfold.

Markets now see a greater chance that the next move is another cut than a hike, but swaps are still pricing in no change in policy throughout the rest of 2026.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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