ECB Holds Rates at 2% as Tariffs Threaten Economy

Summary

The ECB kept interest rates unchanged at 2%, as widely expected, and signaled a data-dependent, non-committal approach. Officials are seen as comfortable holding rates this year and next, helped by a stronger-than-expected Q4 GDP print and the view that inflation undershoots, euro strength, and tariff threats are temporary. The segment also focused on the euro, which had moved through 1.20, and ECB officials' view that currency strength complicates policy and could weigh on exports and inflation.

• ECB held rates at 2%, as expected.
• Officials are expected to keep rates on hold this year and next.
• A stronger-than-expected Q4 GDP print gave cover to stand pat.
• Inflation undershoot, euro strength, and tariff threats are seen as temporary.
• ECB retains full optionality and a data-dependent approach.
• Euro touched and passed the 1.20 level, prompting official pushback.
• ECB views the euro as a policy channel, not a target.
• Strong euro could dampen exports and prolong inflation undershoot.