European Central Banks to Hold Interest Rates Steady in 2026 Amid Dollar Depreciation

• Why Are European Central Banks Freezing Interest Rates?
• How Is the Dollar’s Decline Reshaping Inflation?
• Are Chinese Imports the ECB’s Silent Disruptor?
• What’s Holding the Bank of England Back?
• The Big Picture: Central Banks on a Tightrope
• FAQs: Your Burning Questions Answered

Europe’s top central banks are gearing up to keep benchmark interest rates unchanged this Thursday, mirroring the Federal Reserve’s recent stance. The dollar’s slump and a flood of cheap Chinese imports are reshaping inflation forecasts, with policymakers closely monitoring these trends. While the ECB has held rates steady since June 2025, the Bank of England debates the timing of its next cut. Here’s a deep dive into the forces at play—and what it means for markets.

Why Are European Central Banks Freezing Interest Rates?

The European Central Bank (ECB) and its peers are hitting pause on rate adjustments, a MOVE heavily influenced by the Fed’s recent inactivity. Since June 2025, the ECB has kept its benchmark rate at 2%, and markets don’t expect changes anytime soon. Eurozone inflation ended last year just below the bank’s 2% target, while economic growth outperformed expectations. But lurking beneath the surface are two wildcards: a weakening dollar and an influx of discounted Chinese goods.

How Is the Dollar’s Decline Reshaping Inflation?

A sinking dollar isn’t just a headline—it’s a double-edged sword for Europe. Cheaper imports could further dampen inflation, while weaker demand for eurozone exports might slow economic momentum. François Villeroy de Galhau, France’s central bank chief, recently flagged the dollar’s slide as a key policy driver. ECB President Christine Lagarde is expected to face tough questions on the issue during her post-decision press conference. "Lagarde might try talking down the euro, but we think it has room to climb before justifying another rate cut," notes Bas van Geffen of Rabobank.

Are Chinese Imports the ECB’s Silent Disruptor?

December’s ECB meeting minutes revealed growing unease about Chinese firms slashing prices "faster than in the past" to offset U.S. tariff losses. This price war could amplify the dollar’s deflationary impact. "A stronger euro, fueled by loose U.S. policy and dollar weakness, might push inflation even lower than projected," policymakers warned. The ECB’s base case? Hold rates at 2% but stay ready to pivot if inflation veers off course.

What’s Holding the Bank of England Back?

Across the Channel, the UK faces similar pressures—with a twist. Inflation runs hotter than in the eurozone, but MPC members are split on when to cut. Alan Taylor flagged risks from Chinese imports, while others fret over domestic wage growth. "Most MPC members see 2026 rate cuts ahead but worry about 2026 pay hikes reigniting inflation," says Edward Allenby of Oxford Economics. April’s meeting emerges as the likeliest window for action.

The Big Picture: Central Banks on a Tightrope

From Frankfurt to London, policymakers are threading the needle between slowing inflation and supporting growth. The dollar’s slide and China’s export machine add layers of complexity. One thing’s clear: in 2026’s uncertain landscape, flexibility will be king. As for investors? Buckle up—we’re in for a year of delicate recalibrations.

FAQs: Your Burning Questions Answered

Why are European central banks keeping rates steady?

They’re responding to the Fed’s pause and monitoring two key risks: dollar depreciation (which could lower inflation via cheaper imports) and Chinese goods flooding European markets.

When might the ECB cut rates next?

Not soon. Markets expect holds through mid-2026 unless inflation dips significantly below targets.

How does the Bank of England’s stance differ?

The BOE agrees cuts are coming but debates timing—April 2026 is the watchpoint, pending wage growth data.