Scattered gains for the euro after the ECB hikes as expected

The European Central Bank (ECB) hiked its main refinancing rate to 2.65% on 10 September as widely expected, citing inflation above target. The euro made generally modest gains against most other major currencies with the exception of an overall loss in the aftermath by euro-dollar. This article summarises some of the factors behind the ECB’s decision and possibilities for European rates in the rest of the year then looks briefly at the charts of EURJPY and EURGBP.

The ECB’s forecast for inflation in 2026 remains at 3%, but the projections for next year were raised slightly. The positive note was expectations for growth also being revised upward for 2026 and 2027. Recent GDP data from the eurozone were overall significantly better than initially expected:

0.6% growth in the second quarter according to the final figure was the best quarterly economic expansion in the eurozone in about four years. The ECB commented on unexpected economic resilience in the context of higher inflation and shocks to the prices of energy due to the ongoing conflict in the Gulf.

Meanwhile inflation in the eurozone has risen as elsewhere since the start of hostilities in the first quarter of 2026:

Unlike the USA or Britain where inflation might have peaked for 2026 and could reasonably be expected to  decline in the medium term, 3.3% annual headline inflation in the eurozone for August was the highest since the start of the Gulf conflict. That preliminary release from 1 September was the highest in about three years mainly as a result of higher prices of energy.

Given unexpectedly higher GDP recently, the situation seems somewhat less challenging for the ECB compared to the beginning of summer when stagflation was a more vivid possibility. There are some expectations of another hike to the main refinancing rate in December, which would be the third this year, but for now at least another hike on 29 October seems very unlikely.

Euro-Yen still seems vulnerable below ¥180

The ECB’s widely expected hike on 10 September boosted the euro somewhat against the yen in the aftermath although traders will probably continue to evaluate the possibility of further intervention to prop up the latter. The BoJ is very likely to hike to 1.25% on 18 September, which would take the key policy rate to 1.25%, its highest for 31 years. However, the difference in base rates will almost certainly favour the euro into early 2027 at least.

The 23.6% weekly Fibonacci retracement slightly above ¥180 had seemed to be a possibly strong support at the beginning of September. However, this now appears to have been broken with the price having closed below it three days in a row. If general negativity persists, the next medium to long-term support might be the 38.2% Fibo around ¥175.40.

Some degree of bounce might be likely before another leg down though unless there’s evidence of further significant intervention given that the euro-yen is clearly oversold based on the slow stochastic and Bollinger Bands. If momentum appears strong and the price break back above ¥180, a sideways trend could develop. Traders will watch the BoJ’s meeting on 18 September closely but also monitor Japanese inflation a few hours before the statement plus German economic sentiment on Tuesday 15 September.

Euro-pound faces resistance around 86p

EURGBP didn’t react strongly to the ECB’s hike on 10 September partially due to both central banks facing similar challenges with inflation. The BoE’s rate remains significantly higher than annual headline inflation in Britain with the ECB below the eurozone’s equivalent; in combination with recent comments from central bankers, the divergence in policy might continue to shrink by the end of 2026 with the ECB likely to hike again in December while the timing of the BoE’s hike is less clear.

Activity hasn’t clearly returned yet for euro-pound from summer’s typical lull with ATR remaining low into early September. Now that the price has broken above the 50 SMA from Bands, this might flip into a dynamic support. However, there hasn’t yet been a clear breakout above the 100 SMA and the 38.2% weekly Fibonacci retracement slightly above 86p is a possible resistance too.

There were several abortive attempts to push below the 50% Fibo around the middle of August, so this could be an area of support around 85.4p assuming no unexpected economic or other news in the near future. The key release for EURGBP in the next few days is Wednesday 16 September’s British inflation with the annual headline figure expected to increase to 3.1%.