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FX BANK FORECAST · COVERAGE
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Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 39 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 39 institutional desks. No promotion.
The ECB kept interest rates steady at 2.5% amid Christine Lagarde's unexpected resignation announced for February 2027. The move reflects minimal impacts from recent inflation data and tightening financing conditions, largely driven by rising bond yields following political unrest in France. Per the full note , the pause after two previous rate hikes this year appears prudent, especially given that macroeconomic indicators suggest eurozone resilience despite climbing inflation. As the market digests Lagarde's departure and evolving fiscal situations, investors should monitor both the euro's trajectory and the broader European bond market for signals of future ECB interventions.
The ECB's decision to maintain rates illustrates its cautious stance in the face of favorable economic indicators and rising financing pressures. Per the full note , while inflation remains a concern with headline figures climbing, the central bank is weighing the implications of existing bond market conditions as influencing its policy-making.
The current rate holds suggest that prior actions leading to restrictive conditions are taking precedence, particularly in light of the French crisis impacting eurozone financial stability. This decision comes after two prior rate hikes this year, indicating the ECB is seeking to calibrate between inflation concerns and market realities.
Our consensus forecast sees the EUR/USD at 1.075, with a projected range between 1.04 and 1.12. Specifically, jpmorgan targets 1.10 for March 2026, while bofa positions at a lower 1.04 for the same tenor. Given the current outlook, our position aligns closer to the upper end of this spread and reflects confidence in continued resilience in the eurozone economy despite the leadership transition.
Firms aligned with our view like jpmorgan and others reflect a consensus around steady or slightly growing Euro amidst initial volatility. Conversely, bofa offers a more cautious stance, projecting the euro may face downward pressure amidst upcoming economic challenges.
Market watchers should also consider how EUR/USD trajectory may well depend on upcoming commentary from the ECB regarding potential interventions under the Transmission Protection Instrument, particularly in light of diverging economic signals across member states.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
Market implications
Focus on EUR/USD performance as it tests levels around 1.075, with potential volatility due to the bond market's reaction to geopolitical events. Watch for ECB commentary that may hint towards interventions and guidance amid Lagarde's vacancy.
Risks to this view
A significant deviation in economic data, such as sharper than expected inflation increases or political turmoil affecting broader eurozone stability, could prompt an unforeseen ECB policy shift, invalidating the current market outlook.
Older quick take Quick take Published 13:08 ECB keeps rates on hold as Christine Lagarde announced her resignation With still very little knock-on effects from higher energy prices and headline inflation on the rest of the economy, the ECB kept interest rates on hold today at 2.50%. The breaking news, however, came with Christine Lagarde's resignation, scheduled for February next year ECB President Christine Lagarde What a day in Frankfurt. An uneventful policy action but a very eventful day on other issues.
The ECB just announced that interest rates remain unchanged. The main argument behind this decision is that there are currently very little knock-on effects from higher headline inflation, while, at the same time, financing conditions, ie mainly bond yields, have become more restrictive. The breaking news, however, came just a few hours earlier: ECB president Christine Lagarde announced that she will step down on 7 February 2027.
As regards monetary policy, a pause after two rate hikes this year was expected, even if macro developments since the last meeting could have justified another rate hike. Headline inflation increased again in September and most leading indicators point to continued resilience in the eurozone economy. However, the surge in bond yields on the back of the French crisis is already imposing a new restrictive monetary policy stance.
Or in other words, the bond market has taken over the ECB’s job. As regards France, the juicy part will only follow during the press conference. Political and fiscal concerns in France, and the resulting widening in French spreads, have raised questions about whether the ECB could intervene through the Transmission Protection Instrument (TPI), which allows it to purchase securities issued by member states whose financing conditions have deteriorated for reasons not justified by country-specific fundamentals.
And for countries that are compliant with the EU fiscal framework. It’s hard to argue that this is a condition France currently fulfils. As the ECB prepares for today’s press conference, we hope it remembers the experience of March 2020.
Back then, Christine Lagarde argued that the ECB was not there to narrow spreads, a comment that, while correct in substance, ultimately backfired. Finally, the breaking news earlier today with the announcement of Christine Lagarde’s resignation on 7 February next year will probably also trigger questions. On paper, she is not the first ECB president to step down before the end of the official term.
The first president, Wim Duisenberg, also stepped down earlier. But while Duisenberg’s decision had been part of a political deal when setting up the ECB, Christine Lagarde’s decision seems to be a personal one. With Lagarde, a very different president than her predecessors will leave the ECB.
Lagarde differed in terms of style and tone, and interpreted the role of ECB president more as a moderator and chairperson of the entire Governing Council, rather than a thought leader. With Lagarde and Isabel Schnabel, two of the six ECB’s Executive Board members will now leave before their respective ends of their terms in office. Some have argued that this might leave some bruises on the ECB as an institution, but we think that the ECB’s reputation is stronger and more stable than that.
In the race for succession, the ball is now with European government leaders to now decide on a package deal, Lagarde, Schnabel and also Lane, probably at the European Council meeting in December. Currently, the two main contenders for Lagarde’s succession are Pablo Hernández de Cos from Spain and Klaas Knot from the Netherlands. Both excellent candidates who would bring a high level of monetary policy expertise to the table.
Let’s prepare for an exciting press conference, starting at 2.45pm CET. Monetary Policy Inflation GDP Eurozone ECB Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
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