ECB Holds Interest Rates Steady Amid Ongoing Uncertainty

The European Central Bank (ECB) left its interest rates unchanged, keeping the deposit facility rate at 2.25%, main refinancing operations rate at 2.40%, and marginal lending facility rate at 2.65%. This decision was made in line with the ECB's commitment to ensuring that inflation stabilizes at the 2% medium-term target.

However, the ECB warned of high uncertainty and noted that the full inflationary impact of the energy shock has yet to emerge. It will continue to closely monitor the intensity and duration of the shock as well as any indirect and second-round effects.

ECB President Christine Lagarde stated that 'risks to growth are tilted to the downside' while 'risks to inflation are tilted to the upside'. She also noted that the Middle East conflict is a major source of uncertainty.

The move has led to a slight depreciation of the Euro against the British Pound, with EUR/GBP trading around 0.8530 after hitting an intraday high of 0.8544. Traders are now fully pricing in a rate increase at the September meeting, and markets have also increased their bets on a Bank of England (BoE) rate hike due to persistent inflation pressures.