The ECB Holds Interest Rates With the Fed Expected to Cut. What It Means for Markets.

European Central Bank President Christine Lagarde said the White House’s attempt to take control of the Fed posed “a very serious danger” to the U.S. and global economies. (Thomas Lohnes/Getty Images)

The European Central Bank held interest rates steady on Thursday, setting the stage for Frankfurt’s top policymakers to trade playbooks with the Federal Reserve.

The ECB kept the key deposit rate at 2% on Thursday, as was widely expected. It had held borrowing costs steady at its last meeting in July, having lowered interest rates four times already in 2025.

The decision to hold interest rates was agreed unanimously by the ECB’s governing council, President Christine Lagarde said in a press conference.

The euro zone central bank is at a different stage in its policy cycle from its U.S. counterpart. Investors are all but certain the Fed will lower the cost of credit next week, which would be the first time it has cut rates since December.

President Donald Trump has repeatedly cited the ECB when attacking Fed Chair Jerome Powell for holding rates steady.

The ECB was able to ease monetary policy earlier because of cooler euro-area inflation, which is expected to have risen 2.1% last month, according to a flash estimate from the European Union’s statistical office.

ECB staff economists tweaked their forecasts, but not by much. They’re now projecting inflation of 2.1% in 2025 and 1.7% in 2026. They were previously expecting rates of 2.0%, 1.6%, and 2.0% for those years.

If the Fed and the ECB do trade playbooks—with the U.S. rates falling and euro-area rates on hold—that would spell more bad news for the U.S. dollar, as its relative yield advantage to the euro would shrink. The greenback is down 10% against a weighted basket of its peers this year.

The euro was up 0.4% to just over $1.17 shortly after the policy decision.

“The more pressing question is whether the ECB has finished easing or instead is pausing briefly,” Aberdeen’s deputy chief economist Luke Bartholomew said. He added that France’s bond market was one factor that could force the central bank to start easing again. French borrowing costs have surged in recent weeks, with the country’s government collapsing after it failed to push through budget cuts.

Write to George Glover at george.glover@dowjones.com