EUR/USD struggles near two-month lows on Thursday as traders show a muted reaction to the latest European Central Bank (ECB) interest rate decision.
Meanwhile, escalating tensions in the Middle East keep risk sentiment subdued and support the US Dollar (USD), leaving the Euro (EUR) on the defensive
At the time of writing, the pair is trading in a narrow range around 1.1525. The ECB delivered a widely anticipated 25-basis-point (bps) rate hike on Thursday, raising the Deposit Facility Rate to 2.25%. The central bank ended a seven-meeting pause as policymakers sought to address inflation risks stemming from rising Oil prices.
In its monetary policy statement, the ECB said that “the war in the Middle East is generating inflation pressures” and noted that the decision to raise interest rates is “robust across a range of scenarios mapping out how the shock might evolve and affect the medium-term outlook for the euro area.” ECB President Christine Lagarde said there will be no pre-set path for interest rates. Lagarde also noted that risks to inflation remain tilted to the upside, while risks to economic growth are skewed to the downside. The latest Eurosystem staff projections showed headline inflation is expected to average 3% in 2026, 2.3% in 2027 and 2% in 2028.