ECB Rate Hike Boosts Euro Amid Persistent Inflation

The European Central Bank (ECB) has raised interest rates by 25 basis points at its September meeting, citing an economy that is holding up as the region moves through Q3. ECB President Christine Lagarde pointed to firmer consumer confidence, a recovered services sector, and robust labour market conditions.

However, employment growth is slowing, and exports are constrained by competitiveness and trade policies. The near-term outlook has improved due to consumption and public investment, while business and housing investment are expected to support activity; manufacturing was described as solid.

Inflation pressures persist, with refining margins contributing and a wage tracker indicating a modest uptick in negotiated pay growth, even as higher labour productivity helps restrain unit labour costs. Shorter-horizon inflation expectations remain elevated, while most longer-term measures are around 2%.