Euro Continues to Consolidate at Stronger Levels Ahead of ECB Update, Notes Mitsubishi UFG

07:51 AM EDT, 09/11/2025 (MT Newswires) -- The main event on Thursday will be the European Central Bank's latest policy meeting, said MUFG.

Ahead of the meeting, the euro (EUR) has been consolidating against both the US dollar (USD) and sterling (GBP), wrote the bank in a note to clients. For the last couple of months, EUR/USD has been trading between 1.1500 and 1.1800, while EUR/GBP has just dropped back between 0.8600 and 0.8700.

At Thursday's policy meeting the ECB is expected to leave its policy rate on hold for the second consecutive meeting, stated MUFG. The updated ECB staff forecasts are expected to include modest upward revisions to the near-term growth and inflation forecasts, supporting Thursday's decision to leave rates unchanged.

At the last policy meeting, the ECB signalled that its easing cycle is now closer to the end. The bank sees the ECB sticking to similar guidance on Thursday, but believes it's likely too soon for the ECB to clearly signal an end to the easing cycle at the current juncture, which would provide an upside surprise for the euro.

Having said that, the comments from President Christine Lagarde are likely to indicate that there is a higher hurdle for further rate cuts, pointed out MUFG. The eurozone rate market has already moved a long way to price out further ECB easing this year.

There are currently only 6bps of rate cuts priced by December compared with 12bps a month ago. An unchanged ECB policy stance while the Federal Reserve resumes rate cuts should help to lift EUR/USD up towards the 1.2000 level by year end.

While President Lagarde is likely to be asked about renewed political uncertainty in France, it's unlikely to have a significant impact on ECB policy decisions in the near term, added the bank. French President Emmanuel Macron has acted quickly to choose Sebastian Lecornu, a career politician who served as defence minister in the previous cabinet, to be the next prime minister.

The conservative-turned-centrist reportedly prides himself in getting along with everyone except perhaps with one of the more fiery figures on the far left, according to French daily Le Monde.

Proposing a budget for next year will be one of the first major tests of the new premier. In his inaugural speech on Wednesday, Lecornu pledged to change the way the government deals with opposition, stressing that negotiations must be more creative and technical. Previous plans for 44 billion euros of fiscal tightening next year will need to be scaled back to garner more political support in parliament, according to MUF.

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