Yesterday, the European Central Bank kept interest rates unchanged, citing risks stemming from the trade war with the U.S., the strong euro, and rising government spending.

According to Governing Council member Martins Kazaks, the ECB has no reason to cut interest rates further unless the economy suffers serious damage. The head of Latvia's central bank stated that, given inflation is at 2% and the eurozone's performance is broadly in line with the ECB's latest forecasts, there is no clear basis for a rate cut in September, as most economists had expected ahead of this week's meeting. "Keeping rates at current levels makes sense, and the time for clear-cut decisions on hikes or cuts has passed," Kazaks said in an interview in Frankfurt. "In the current situation, a stable policy is advisable."

His comments came a day after officials, for the first time in a year-long easing campaign, left interest rates unchanged and provided no specific guidance on next steps, opting to wait for clarity in trade negotiations with the U.S. Holding the rate steady appears to be the baseline scenario for the next Governing Council meeting, with policymakers pushing for another cut likely facing a tough challenge.

Right after the meeting, traders revised their expectations for a rate cut in September and beyond, interpreting ECB President Christine Lagarde's remarks—that the ECB is currently well-positioned to achieve 2% inflation—as a signal that the threshold for further action has increased. "There's no need to panic—there is no urgent need for a rate cut," Kazaks said. "Given the substantial and ongoing easing over the past year, the ECB still has room to provide further stimulus, which could significantly impact the economy, but there is no need to act just yet."

On the other hand, policymakers including Francois Villeroy de Galhau of France expressed readiness to ease further, citing concerns over a more pronounced slowdown in growth and persistent failure to meet the 2% inflation target. The euro's appreciation is also a concern, as a pause in rate cuts could make the currency more attractive. Vice President Luis de Guindos recently said in an interview that any rise in the euro's exchange rate above 1.20 dollars would significantly complicate matters for policymakers and the broader economy.

Following this week's ECB meeting—which coincided with reports that the European Union and the U.S. are close to reaching a trade agreement—the head of Latvia's central bank urged policymakers to hold off on forming conclusions about the potential terms. "Given how quickly political views can change, it's better to wait and act based on actual decisions rather than speculation," Kazaks said, adding that the economy still has "some untapped growth potential." He stressed that if the trade dispute is resolved swiftly and excess uncertainty is removed, a rise in confidence could support investment and consumption, thereby mitigating the clearly negative effects of tariffs.

As for the current technical outlook on EUR/USD, buyers now need to focus on breaking above the 1.1760 level. Only then will a test of 1.1790 become possible. From there, the pair could reach 1.1825, although doing so without support from major players will be challenging. The furthest target remains the 1.1860 high. In case of a decline, significant buyer interest is expected only around the 1.1735 level. If no support appears there, it would be wise to wait for a retest of the 1.1710 low or consider long positions from the 1.1680 level.

As for the current GBP/USD technical outlook, pound buyers need to break through the nearest resistance at 1.3515. Only then will it be possible to aim for 1.3540, although breaking above that level may prove quite difficult. The furthest target would be the 1.3580 level. If the pair falls, bears will try to gain control at 1.3470. If successful, a breakout below this range would deal a serious blow to the bulls and drive GBP/USD down to the 1.3435 low, with the potential to reach 1.3400.