European Central Bank interest rate decision: What to know in markets on Thursday

Major central banks kept rates steady in the first quarter of 2024, claiming they would need more data before reverting their current restrictive monetary policies. Overall, policymakers converge in interest rates having reached cycle peaks. 

The United States (US) Federal Reserve (Fed) foresaw three rate cuts in 2024 in its December Summary of Economic Projections (SEP), and repeated it in the March document. However, recent comments from Chairman Jerome Powell cooled down expectations, as he said policymakers are in no rush to trim rates. 

At this point, the ECB is likely to trim rates before the Fed, which would be quite notable and could put pressure on the EUR/USD pair. 

The latest Hamburg Commercial Bank (HCOB) and S&P Global surveys delivered a positive surprise in the Eurozone as  March Composite PMIs showed business activity expanded for the first time in over a year. 

In the March meeting, the ECB projected headline inflation should fall from 5.4% in 2023 to 2.3% in 2024 and then to 2.0% in 2025, reaching 1.9% in 2026. At the same time, policymakers expect that real GDP should increase by 0.6% in 2024, by 1.5% in 2025 and by 1.6% in 2026.

The US published the March Consumer Price Index (CPI) on Wednesday, which was higher than anticipated, sending financial markets into a risk-averse spiral. The US Dollar soared, while stocks collapsed, as the figures gave the Fed plenty of time before trimming interest rates. 

The EUR/USD pair heads into the ECB announcement gaining bearish momentum and trading well below the 1.0800 threshold.