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The European Central Bank "stands on its own", why is the market panicked?

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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Decision Analysis]: The European Central Bank "stands on its own", why is the market panicked?" Hope it will be helpful to you! The original content is as follows:

On Thursday (September 11), at 20:15 Beijing time, the European Central Bank (ECB) announced that it would remain unchanged in three key interest rates: deposit convenience rate 2.00%, main refinancing rate 2.15%, and marginal loan rate 2.40%, which is fully in line with market expectations. After the resolution was announced, the European Central Bank raised its 2025 economic growth forecast to 1.2% (previously 0.9%), but lowered its 2026 growth forecast to 1.0%, while inflation expectations showed that it was 2.1% in 2025, fell to 1.7% in 2026, rebounded to 1.9% in 2027, and core inflation is expected to be 1.8% in 2027, both slightly below the 2% medium-term target.

After the resolution was issued, the euro fell rapidly against the US dollar from 1.1684 to 1.1664, a drop of about 0.25%, while the yield on Germany's 10-year government bonds remained stable at 2.66%. The market response was mild but bearish, reflecting the www.xmhouses.complex sentiment of investors towards the European Central Bank's cautious attitude. This article will analyze the changes in market sentiment after the resolution from the perspectives of instant market response, interpretation of institutions and retail investors, and expectations of the Federal Reserve's interest rate cut, and look forward to the future trend of the euro.

Instant market reaction: The euro fell in the short term, and risk aversion sentiment heated up

After the resolution was announced, the euro fell against the US dollar, falling from 1.1684 to 1.1664, with a short-term fluctuation of about 20 points, indicating that the market's response to the European Central Bank's decision to maintain interest rates is relatively short. Although economic growth expectations were raised to 1.2%, the downward trend in inflation expectations and the statement of "data dependence and no preset path" at Lagarde's press conference failed to inject more confidence into the market. Germany's 10-year treasury bond yield remains at 2.66%, indicating that the bond market's response to the resolution is calm, and investors pay more attention to itThe balance between economic resilience in the euro zone and external risks.

Real-time feedback shows that the market generally expects the ECB to keep interest rates unchanged before the resolution, but some traders bet that Lagarde may send a clearer signal of easing. Some institutions said before the resolution: "I don't expect any surprises today, with the focus on updated economic forecasts, but the expectations are not much change." This view reflects the market's low expectations for the resolution. However, after the resolution was announced, the short-term decline of the euro indicated that some long positions quickly left the market, and market sentiment shifted from cautious optimism to wait-and-see. In contrast, historical markets show that after a 25 basis point interest rate cut on April 17, 2025, the euro rose instead of falling, once hitting a high of 1.1478, indicating that the weakening of the US dollar's credit and European fiscal stimulus expectations supported the euro at that time. The current rapid decline of the euro may reflect the market's disappointment with the ECB's "stand-hold" position and concerns about future inflation being below targets.

Interpretation of institutions and retail investors: Differences emerge, and cautious sentiment dominates

Interpretation of institutions: Institutional analysis generally focuses on the European Central Bank's data dependence strategy and uncertainty of external risks. Well-known institutions pointed out that the European Central Bank's interest rate maintenance this time reflects its confidence in the economic resilience of the eurozone, especially raising its economic growth forecast for 2025 to 1.2%, showing optimistic expectations for private consumption and German fiscal expenditure. However, inflation expectations were lowered to 1.7% in 2026 and 1.9% in 2027, and core inflation was only 1.8% in 2027, indicating that inflation stickiness has weakened and increased the possibility of "insured interest rate cuts" in the future. Institutions expect the market to evaluate the probability of interest rate cuts before next spring to 50-60%, resonating with the Fed's easing expectations. The ECB reiterated: "We keep key interest rates unchanged, as inflation is expected to stabilize near the 2% target." This statement was interpreted by institutions as the ECB intends to extend the wait-and-see period to avoid premature www.xmhouses.commitments to easing.

Retail investors' interpretation: Retail investors' sentiment is more differentiated. Some retail investors expressed disappointment at the short-term decline in the euro, believing that Lagarde failed to provide a clearer easing signal at the press conference, resulting in a lack of direction in the market. Some traders predicted before the resolution: "The mainstream market view believes that the European Central Bank will wait and see for the time being and wait for the Federal Reserve's interest rate meeting in September before making a decision." This forecast is consistent with the results of the resolution, but retail investors' reaction to the euro's decline is more emotional, and some attribute it to "the market's advance reaction to the Fed's expectations of interest rate cuts." Other retail investors pointed out that the risk aversion sentiment caused by France's political instability and Trump's tariff remarks may have exacerbated the euro's selling pressure. In contrast, after the resolution on July 24, 2025, the euro rose to 1.1756 in the short term, indicating that the market was more accepting of maintaining interest rates at that time. Currently, retail investors prefer short-term risk aversion, believing that the euro may be under further pressure.

Federal interest rate cut expectations and changes in market sentiment

The impact of the Federal Reserve's monetary policy expectations on the euro trend cannot be ignored. The market generally expects the Federal Reserve to discuss on September 17-18The interest rate cut was 25 basis points at the interest rate meeting, and the CME data showed that the probability of interest rate cut was as high as 84%. Goldman Sachs and other institutions predict that the Federal Reserve will cut interest rates by 3-4 times in 2025, and the terminal interest rate may drop to 3%-3.75%. This expectation should theoretically weaken the dollar and push up the euro, but the decline in the euro after the resolution suggests that the market is more concerned about internal risks in Europe. French political turmoil has pushed up French bond yields, and the risk aversion triggered by Trump's tariff remarks may offset the potential benefit of the Fed's interest rate cut to the euro. In addition, the strengthening of the euro may further lower import prices and intensify downward pressure on inflation, which was repeatedly mentioned at Lagarde's press conference, causing market concerns about the risk of "low inflation-low growth" in the euro zone.

Before the resolution, the market had sufficiently priced the European Central Bank's interest rate to maintain stability, and the euro fluctuated narrowly against the US dollar, reflecting the cautious attitude of traders. After the resolution, the euro fell rapidly to 1.1664, showing the market's dissatisfaction with the ECB's "fuzzy guidance." www.xmhouses.compared with historical trends, after a 25 basis point cut on June 5, 2025, the euro rose against the US dollar and the euro against the pound, indicating the market's positive response to clear easing signals. The current changes in market sentiment mainly stem from two points: First, the fuzzy statement of the ECB on future interest rate paths failed to boost bulls' confidence; second, external risks (such as French political situation and tariff remarks) have intensified risk aversion sentiment, causing short-term pressure from the euro.

Future trend outlook

In the short term, the euro may fluctuate against the US dollar in the range of 1.1650-1.1700, and the market will closely monitor the results of the Federal Reserve's interest rate meeting on September 18. If the Fed cut interest rates by 25 basis points as expected and Powell released a signal of further easing, the US dollar may weaken further and the euro is expected to rebound above 1.1700. However, if the Fed rate cut is lower than expected, or if the worsening of France's political situation leads to intensified volatility in the euro zone bond market, the euro may test the support level of 1.1600. From a technical perspective, the 20-day moving average of the euro against the US dollar (about 1.1650) will become a key support, and if it falls below, it may further fall to 1.1580.

In the medium and long term, the ECB's data dependence strategy means that future interest rate paths are highly dependent on inflation and growth data. Inflation expectations were lowered to 1.7% in 2026 and 1.8% in 2027, indicating that the ECB may implement an "insured rate cut" at the end of the year or next spring to prevent inflation from continuing to fall below its target. However, uncertainty in euro zone economic growth expectations (downgraded to 1.0% in 2026) and external risks (such as the situation in Russia and Ukraine and tariff remarks) may limit the upside space of the euro. Institutional analysis believes that the euro may remain in the range of 1.15-1.20 against the US dollar by the end of 2026 unless the euro zone fiscal stimulus (such as Germany's 500 billion euro special fund) effectively boosts economic confidence.

In general, although the ECB's interest rate resolution on September 11 met expectations, it failed to provide a clear direction for the market, resulting in the euroShort-term decline. The differences between institutions and retail investors reflect the www.xmhouses.complex trade-offs of markets on the resilience of the euro zone economy and external risks. In the short term, expectations of the Fed's interest rate cut and the French political situation will become key variables in the euro's trend. In the medium and long term, the euro zone economic fundamentals and the European Central Bank's prudent policies will limit the euro's large fluctuations, and investors need to pay close attention to the opportunities and risks brought by data dynamics and global policy differentiation.

The above content is all about "[XM Foreign Exchange Decision Analysis]: The European Central Bank "stands on its own", why is the market panicked?", which was carefully www.xmhouses.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your transactions! Thanks for the support!

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