ECB Steady, Schnabel Flags Upside Risk: EUR Rises!

Introduction

The euro moved higher this week after the European Central Bank kept interest rates unchanged and ECB executive board member Isabel Schnabel signalled that inflation risks may be tilted to the upside. That combination — a neutral ECB stance reinforced by hawkish-leaning commentary — alongside growing expectations of easing from the Federal Reserve, produced a bout of volatility in EUR/USD, which traded around 1.15–1.16 and briefly dipped below 1.15 earlier in the week.

Why the ECB’s Steady Stance Matters for the Euro

Wage growth and inflation signals

Recent eurozone data showed wage growth cooling, reducing immediate upside inflation pressures. Yet inflation is close to the ECB’s 2% target, so officials have little urgency to cut rates. With the ECB’s main refinancing rate at roughly 2.15% and the deposit facility at about 2.00%, the central bank’s hold supports the euro by removing expectations of imminent easing.

Schnabel’s remarks: skewed risks, not reassurance

On November 12, Isabel Schnabel warned publicly that inflation risks appear tilted upward. That comment matters because it signals the Governing Council is mindful of upside inflation surprises — a stance that discourages markets from pricing rapid rate cuts. For FX traders, such commentary can act like a short-term underpin beneath EUR/USD even when other data (like softer wages) point to slower inflation.

Immediate Drivers of EUR/USD Movement

Federal Reserve expectations: dollar weakness supports the euro

Markets have been pushing back on the idea of persistent Fed hawkishness, increasing the probability of U.S. rate cuts over coming months. Those Fed easing bets have weakened the dollar and provided a tailwind for the euro. When the U.S. policy outlook softens while the ECB remains cautious about easing, EUR/USD often benefits — as we saw in the recent trading range around 1.15–1.16.

Technical levels and short-term trade ideas

Technically, EUR/USD’s support near 1.145–1.150 is significant; a clean break below that zone could invite more selling. Conversely, resistance around 1.160–1.165 caps upside for now. Traders looking to position should monitor incoming eurozone inflation prints and wage releases for fresh impetus, and consider tight stops given likely headline-driven volatility.

What Traders Should Watch Next

• Eurozone inflation and wage data: any surprise acceleration would strengthen the euro and reduce expectations of ECB easing.
• ECB communication: shifts in tone from Governing Council members could change rate-cut expectations quickly.
• Fed updates: stronger signals of U.S. cuts would likely weaken the dollar further and lift EUR/USD.
• Geopolitical or trade developments: supply disruptions or commodity price shifts can feed through to euro inflation and the exchange rate.

Conclusion

This week’s action was driven by a careful ECB that opted to keep rates steady and by high-profile commentary from Isabel Schnabel highlighting upside inflation risks. Combined with softer dollar dynamics tied to Fed easing bets, the net effect was a firmer euro trading in the 1.15–1.16 area. For traders, the near-term balance depends on upcoming inflation and wage data plus central-bank messaging from both Frankfurt and Washington — items that could tip EUR/USD decisively in either direction.