The Euro edges higher on Thursday as the European Central Bank’s rate decision edges closer. Markets expect the ECB to increase interest rates from 2.40% to 2.65% taking the main refinancing rate to an 18-month high. The Euro will be influenced by the rate decision, but also largely from the guidance given during the press conference. However, the US Producer Price Index may also impact the Euro, as the Dollar is its main competitor.

Later this afternoon, the US will announce its Producer Price Index (producer inflation), followed by the consumer inflation figure tomorrow. If the US inflation is higher than expectated and the ECB’s President, Christine Lagarde, is not hawkish enough, the Euro may decline. Currently, the worst-performing currency of the day is the US Dollar. The Euro is the third-best-performing after the Swiss Franc and New Zealand Dollar.

Euro and the ECB Rate Decision

The 25-basis-point hike is fully priced into the Euro and European indices. For this reason, a rate hike is not adequate to maintain bullish price movement. The key for investors will be Christine Lagarde’s comments on future rate hikes and inflation in the EU.

Eurozone headline inflation jumped from 2.9% to 3.3% in August, largely because of energy prices. At the same time, Brent crude has moved back above $100, increasing the risk that energy inflation spreads into transportation, manufacturing, and eventually consumer prices.

If President Lagarde indicates that today's hike may not be enough, markets will start pricing the deposit rate at 2.75%. Deutsche Bank, JPMorgan, and BNP Paribas are among those now expecting another 25-basis-point hike in December. This would be positive for the Euro and negative for European indices.

Interestingly, the ECB may raise its 2026 growth projection because the economy has performed better than expected. Stronger growth gives the ECB more room to hike without fearing an immediate recession or economic slowdown. As the EU is a net importer of oil, higher oil prices are also key to the Eurozone’s monetary policy.

From recent speeches and interviews, certain ECB members are looking to vote for a hike. These include Germany’s Joachim Nagel, as well as Isabel Schnabel and Olli Rehn. However, others are more reluctant, such as Philip Lane. Though it is vital that traders remember that developments across the Atlantic will also be key for the Euro.

US Dollar and US Inflation

Producer inflation figures can be just as important for the Fed’s decision as the CPI. For this reason, many traders are eagerly watching today’s event. Traders should note that last month’s PPI announcement prompted double the amount of volatility compared with CPI.

Currently, there is roughly a 60% probability of a 25-basis-point Fed hike, while economists surveyed by Reuters still mostly expect the Fed to leave the 3.50-3.75% rate unchanged. That disagreement means that today’s inflation figure will be even more important and could trigger new impulse waves.

Analysts expect the Producer Price Index to have risen 0.4% in August and the core figure to have risen 0.3%. If the figure reads higher than the expected, the US Dollar could rise and the Euro could decline. Tomorrow’s CPI figure could also have a similar impact but may experience slightly less volatility.

EUR/USD - Technical Analysis

In terms of technical analysis, the Euro has a slight edge over the US Dollar for the time being. The price is trading above the key moving averages on most timeframes, but is also at a neutral level on the RSI. During the Asian session, the price of the EUR/USD rose but is now trading sideways. Investors are most likely awaiting for the latest data to be made public.

If the price rises above 1.16405, buy signals could start to materialise from the breakout and bullish crossover. However, traders should be cautious of the resistance levels at 1.16535 and 1.16795. However, if the PPI release pushes the price down, with a weaker PPI reading, sell signals may potentially materialise at 1.16340 and 1.16290.

Key Takeaways:

• The ECB is expected to hike rates by 25 basis points, but Lagarde’s guidance on future hikes will be more important for the Euro.
• Higher Eurozone inflation and rising oil prices could strengthen the case for further ECB tightening later this year.
• US PPI and CPI will be key for Fed expectations, with stronger-than-expected inflation likely to support the US Dollar.
• EUR/USD remains technically supported, with 1.16405 as a key upside trigger and resistance around 1.16535–1.16795.