The European Central Bank (ECB) has left interest rates on hold at 3.75%, as widely expected, after cutting from a record 4% at its meeting in June.
Policymakers said they are “not pre-committing to a particular rate path” as they held borrowing costs steady. The bank also warned that inflation is expected to remain above its 2% target “well into next year.”
Money markets have priced in around a 75% chance that the ECB will cut interest rates by a quarter of a percentage point in September and more than an 80% chance of an additional reduction by the end of the year.
In the statement alongside its decision, the ECB said: “The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction.
“In particular, its interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.”
President Christine Lagarde will speak at a press conference shortly, where many expect more clarity about the path monetary policies will take in the foreseeable future.
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Patrick Munnelly at TickMill Group said: “Traders will closely watch for any comments from officials that may provide insight into future rate cuts. These comments are likely to influence the euro, which reached a four-month high on Wednesday as traders fully priced in a 25 basis-point rate cut by the Federal Reserve in September, following remarks from officials.”
It comes as the latest figures from Eurostat, the statistical office of the European Union, showed that eurozone inflation crept lower in June, coming in at 2.5%. However, similarly to UK inflation, price rises in services remained persistent.
The consumer prices index for the single currency bloc inched down from an upwardly revised 2.6% in May.
Prices were pushed higher in services, which rose by 1.84 percentage points, followed by food, alcohol and tobacco, up 0.48 percentage points and non-energy industrial goods, at 0.17 percentage points higher.
The lowest annual inflation rates were registered in Finland (0.5%), Italy (0.9%) and Lithuania (1.0%). The highest annual rates were recorded in Belgium (5.4%), Romania (5.3%), Spain and Hungary (both 3.6%).
Read more: UK wage growth slows amid interest rate cut hopes
Pierre Veyret, technical analyst at ActivTrades, said: “After yesterday’s CPI data came out as anticipated, investors will pay attention to ECB president Christine Lagarde’s press conference and hope to gather clues on where rates may go at the next meetings.
“With monetary policies seen as the top market movers for equity and FX markets, volatility spikes will be expected throughout today’s trading session. Any dovish hints from Lagarde should significantly boost market sentiment for stocks, likely inverting the bearish trend spotted during the last few days.
“On the other hand, a lingering blurry outlook or, worse, a hawkish semantic could dramatically affect price action and make the current correction deeper for stocks.”
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