2.75% Deposit Rate In Sight: ECB’s December Hike Bets Keep Euro Supported

The euro is being supported by expectations of further European Central Bank tightening, with both ING and UOB Group pointing to a likely December rate hike and tighter financial conditions as key drivers for EUR/USD’s near-term path.

ING sees ECB tightening expectations and softer dollar risks lifting EUR/USD toward 1.12

ING highlights that President Lagarde signaled the ECB’s “direction of travel remains towards further tightening,” and that officials are “ready” to raise rates in December, reinforcing a hawkish policy backdrop for the euro. At the same time, ING notes downside risks for the US dollar linked to AI stocks and US midterms, leading the bank to flag scope for EUR/USD to re-test the 1.120-1.1250 area as markets price in a more supportive environment for the single currency.

"Lagarde said a hike was discussed at the meeting and hinted that the direction of travel remains towards further tightening. She also gave no indication that French bonds are prompting any dovish rethink at the ECB. Finally, the customary tip to the media a few hours later indicated that officials are “ready” to raise rates in December. We see a decent chance of EUR/USD re-exploring the 1.120-1.1250 area, as the dollar faces downside risks related to AI stocks and US midterms."

UOB Group expects one final ECB hike in December as energy-driven inflation risks sustain support for the euro

UOB Group underscores that the ECB’s October meeting “reinforces rather than alters” its call for one last 25 bps hike in December, taking the Deposit Facility Rate to 2.75%, a path that keeps policy bias supportive for the euro. The bank points to the ECB’s “growing concern about the persistence of the energy shock and the possibility of second-round effects” as justification for further tightening, even as “the sharp rise in sovereign yields and tighter financial conditions” argue for patience and reduce the urgency of immediate action.

"We continue to expect one final 25 bps hike in Dec, taking the Deposit Facility Rate to 2.75%. The ECB's growing concern about the persistence of the energy shock and the possibility of second-round effects remains supportive of further tightening, but the sharp rise in sovereign yields and tighter financial conditions have reduced the urgency for immediate action. Overall, the Oct meeting reinforces rather than alters our existing ECB call. Inflation risks have risen further due to the energy shock, policymakers openly debated an immediate hike, and Lagarde's guidance points toward further tightening if incoming data evolve broadly as expected. At the same time, financial conditions have tightened significantly, providing a natural argument for patience."

The takeaway

Taken together, ING and UOB Group see the European Central Bank’s hawkish bias and readiness to raise rates in December as key supports for the euro, even as tighter financial conditions temper the pace of action. ING translates this into potential EUR/USD upside toward the 1.12 area amid dollar-specific risks, while UOB Group emphasizes that energy-driven inflation and second-round effects justify one final hike, leaving the euro backed by a still-tightening policy stance.