ECB Hikes Refinancing Rate Amid Euro Firms on Inflation Concerns

The European Central Bank (ECB) has raised its main refinancing rate to 2.65% as inflation remains above target, causing the euro to firm against major currencies.

Despite modest gains against most majors, the euro slipped overall against the dollar after the decision. August's headline inflation accelerated to 3.3% year on year, driven mainly by energy prices, which is the highest since the Gulf conflict began and the fastest in about three years.

The ECB left its inflation projections for 2026 at 3%, with the outlook nudged higher, while growth forecasts for 2026 and 2027 were revised up. Eurozone output was firmer than earlier readings implied, with GDP rising 0.6% in the second quarter, the strongest quarterly expansion in about four years.

Markets see scope for another move in December, which would be the third hike this year, while a 29 October increase is viewed as unlikely.