There will no be no changes to key interest rates today and no tweaks to other policy instruments as well. So, that leaves very little for the ECB to work with and not much for markets to really scrutinise overall. It’s going to be all about the language and how the ECB wants to communicate their future steps, although whether or not traders believe that is another thing.

The base case is that the central bank is going to maintain most of the language from September, acknowledging more positive inflation developments. That should outline their cause for pause before emphasising that at this point, sticking with higher rates for longer is the more impactful decision in the fight against inflation.

I reckon Lagarde might also point to some risks amid the geopolitical tensions in the Middle East but she should fall short of saying that such a development would be enough to warrant further rate hikes amid more persistent inflation. The magic words will be „it is still too early to tell“.

Besides that, I don’t see much else that the ECB can work with at this point. There might be a word or two about potentially discussing unwinding PEPP reinvestments earlier but I would expect policymakers to keep kicking that can down the road. As such, it might not feature too prominently in the statement or in Lagarde’s comments later on.

The ECB has sold a pause and they now have to go with that, at least for the time being. I would expect that even with worsening economic conditions, Lagarde will still tout that they have room to work with should they need to hike in December. But not any time sooner and so, there should not be any fireworks today.

So, where does this leave the euro?

At the balance, the single currency should not be too much impacted as we already know what to expect from the ECB. And their recent communication has also emphasised what they will try to sell again from today’s meeting. In the case of EUR/USD, the stronger dollar now will be the more crucial factor driving price action alongside bond yields and broader market sentiment.

This article was written by Justin Low at www.forexlive.com.