Key Facts
• ECB President Christine Lagarde stated disinflation has ended, risks are balanced.
• Traders now expect no rate cuts through the end of 2026.
• Before September 11, markets anticipated one rate cut by mid-2026.
• Euro rose 0.4% to $1.1746, reversing losses against the dollar.
• German 2-year bond yields climbed 5 basis points to 2%, highest since April.
• Probability of a 0.25-point ECB rate cut by mid-2026 fell below 50%.
• Aviva Investors suggests current rates may be the terminal rate.
• ECB’s stance contrasts with the U.S., where rate cuts may resume soon.
Summary
The European Central Bank (ECB) is signaling the likely end of its rate-cutting cycle, as President Christine Lagarde highlighted balanced risks to eurozone growth and the conclusion of disinflation. This shift has led traders to expect no further rate cuts through 2026, a stark change from earlier forecasts of a mid-2026 cut. The euro strengthened 0.4% to $1.1746, while German 2-year bond yields rose to 2%, the highest since April. Market expectations for a 0.25-point rate cut by mid-2026 have dropped below 50%, down from over 60% before Lagarde’s remarks. Analysts suggest current rates may represent the terminal rate, with potential rate hikes becoming a focus in 2026. The ECB’s steady stance contrasts with the U.S., where rate cuts are anticipated to resume soon.
