EUR/USD Falls as ECB Hikes Rate to 2.50% Amid Hawkish Inflation Projections

The EUR/USD price dropped to 1.1604 after the European Central Bank (ECB) raised its deposit rate to 2.50% from 2.25%. This decision was in line with market expectations, but the euro fell despite this as investors had already priced in the hike.

The ECB also revised its inflation projections higher, forecasting headline inflation at 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028. Inflation excluding food and energy is projected to rise from 2.5% in 2026 to 2.6% in 2027 before easing to 2.3%. This hawkish set of numbers suggests that the ECB is more concerned about inflation risks than previously thought.

Meanwhile, August producer prices came in hot at 5.4%, while core PPI missed expectations at 0.2% month-over-month. These figures contributed to a rise in the dollar index and a climb in the benchmark 10-year Treasury yield to 4.90%, its highest since November 2023.

The ECB's decision and subsequent press conference, where President Lagarde declined to provide clear guidance on future rate increases, led to a loss of momentum for the euro. As a result, the EUR/USD price fell back towards the middle of its recent trading range between 1.1580 and 1.1650.