ECB Rate Hike Fails to Spark Euro Rally

The European Central Bank is set to raise interest rates by 25 basis points this week, in line with market expectations and Citi Economics forecasts.

This move is already fully priced into overnight indexed swaps at 25.1 basis points, suggesting it will not have a significant impact on the foreign exchange market.

Citi notes that despite staff projections revising inflation estimates higher, a hawkish delivery may have limited impact on the euro.

The bank suggests that expectations of further rate hikes in December 2026 and June 2027 are already priced into the curve, making it difficult to add a hiking premium from guidance alone.