ECB Holds Rates as German Business Sentiment Jumps

The European Central Bank left its three key interest rates unchanged at its July 23 meeting, holding the deposit facility rate at 2.25% after raising rates by 25 basis points in June, its first increase in three years. President Christine Lagarde struck a cautious tone, signalling a wait-and-see approach and pointing to September as the next opportunity to reassess policy. Eurozone inflation has eased to around 2.8% but remains above the ECB's 2% target, while growth is projected at a subdued 0.8% for 2026, and services inflation driven by wages continues to run near 3.5% to 4%, a figure policymakers watch closely for signs of persistent price pressure. Against that backdrop, German economic sentiment improved sharply: the ZEW index jumped to 26.3 in July from 10.5 in June, well above forecasts and its largest monthly gain in years, with the broader eurozone gauge also rising. The rebound suggests businesses in Europe's largest economy believe the worst of the energy shock has passed, even if hard data has yet to confirm a recovery. Markets read the combination of a steady ECB and improving confidence as cautiously encouraging, though risks from energy prices and wage-driven inflation remain.