EUR/USD Could Retrace Further Before Bulls Return

The European Central Bank (ECB) is set to raise its deposit facility rate by 25 basis points to 2.5% on Thursday, as all 65 economists polled by Reuters agree that a hike is imminent.

The decision itself is unlikely to be the main event unless the ECB shocks with a surprise hold, but traders will be closely watching for signs of future policy expectations in the bank's economic outlook and tone.

The key issue is whether policymakers treat the latest energy shock as another temporary disruption or the beginning of a more persistent inflation trend. The ECB's inflation projections under the microscope, as any changes to its 2026 and 2027 forecasts could provide the clearest guide to whether policymakers see inflation remaining above target for longer.

The recent inflation data was slightly nuanced, with headline CPI accelerating on the back of surging energy prices, but core and services inflation easing. The ECB has some wriggle room to argue that underlying inflation has not accelerated, although policymakers will be mindful of rising energy costs.