The European Central Bank will announce its interest rate decision. Market analyst Piero Cingari stated that following the June interest rate cut, it is expected that the ECB will maintain interest rates and guidance unchanged at its meeting on July 18th, which is also widely expected by market participants.

The ECB is expected to firmly maintain interest rates unchanged, but the door to a September rate cut remains open

Cingari pointed out that there are several factors supporting the central bank's stability maintenance in July. Policy makers emphasize that the June interest rate cut does not mean that interest rates will decrease linearly. In addition, there have been no significant data changes since June, and committee members generally tend to wait for the new quarterly macroeconomic forecast for September.

The latest inflation report shows that the overall annual inflation rate in the eurozone has slightly decreased, from 2.6% in May to 2.5% in June. However, the core inflation rate, excluding energy and food, remains stable at 2.9%. The service sector inflation has also remained at a high level of 4.1%, indicating no signs of slowing down so far in 2024.

Peter Schaffrick, Capital Markets Strategist at Royal Bank of Canada, said, "We believe that the European Central Bank may convey a message that they still firmly believe inflation is falling and that they have the overall ability to further ease policy

Market participants believe that a rate hike in September is almost certain, and interest rate futures show an 80% probability of this event happening.

Analysts predict that there will be two more interest rate cuts before the end of the year

Analysts generally believe that the European Central Bank will choose to cut interest rates twice this year, in September and December. In recent weeks, no policy maker has questioned this viewpoint.

Antonio Villarroya, an economist at Santander CIB, said, "We believe that the European Central Bank will not be uneasy about the current market expectation of a possible 25 basis point rate cut in September. Furthermore, our inflation forecast is in line with the quarterly pace of rate cuts, with interest rates reaching 2.5% by September 2025

BNP Paribas expects the ECB's statement on Thursday to indicate significant progress in addressing inflation, but also acknowledges that domestic price pressures remain strong. They expect the European Central Bank to cut interest rates by 25 basis points in September and December respectively, and deposit rates to reach 2.50% by 2025.

UniCredit Italy believes that due to high service price inflation, strong wage growth, and a flexible labor market, the European Central Bank is unlikely to continue cutting interest rates. They believe that the policy interest rate will remain restrictive until it reaches around 3%.

According to this Italian bank, it is expected that the European Central Bank will cut interest rates twice in 2024 and then by 25 basis points in the quarter of 2025.

Lagarde's remarks should open the door for a rate cut in September, although the signal will be softer than before the June rate cut, "said Bill Diviney, senior economist for the Eurozone at Dutch Bank

They expect the ECB to cut interest rates in September, as long as wage and inflation data do not show any significant upward surprises.

EUR/USD daily chart

Due to factors such as the good performance of CPI data and the clarification of the French election results, the euro has recently experienced a continuous rise. However, based on the above news, it can be seen that although the European Central Bank has maintained stability this week, the door to interest rate cuts is still open, which is a potential negative factor facing the euro. Investors need to remain vigilant about this.