The euro pared earlier losses to trade around $1.162 after the European Central Bank raised interest rates as expected and revised up its inflation and growth forecasts for the coming years. The move marked the ECB’s second rate increase since the outbreak of the US-Iran war, accompanied by a warning that inflation is likely to remain well above the 2% target for an extended period.
The central bank kept its 2026 inflation forecast unchanged at 3.0%, but lifted its projections for 2027 and 2028 to 2.5% and 2.1%, respectively. At the same time, GDP growth forecasts were upgraded to 0.9% for 2026 and 1.4% for 2027, underscoring stronger-than-expected resilience in the euro area economy. The 2028 growth forecast was left unchanged at 1.5%.