The European Central Bank raised interest rates by 25 basis points on September 10, 2026, pushing borrowing costs higher to tame stubborn eurozone inflation. Despite the hawkish policy move and a strengthening U.S. dollar, spot gold held resiliently between $4,325 and $4,425 an ounce as shifting rate-cut expectations supported the metal.
European Central Bank Delivers Second Rate Hike of 2026
The European Central Bank raised its three key interest rates by 25 basis points on Thursday, marking its second rate increase of the year. Policymakers acted to quell an energy-driven rise in consumer prices fueled by the Iran war and mounting supply risks around the Strait of Hormuz, where crude oil trading above USD 100 a barrel has driven up transport, factory, and distribution expenses. The central bank said it was forced to raise interest rates as inflation pressures remain well above its 2% target. “The conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period. Today’s decision underscores the Governing Council’s commitment to setting monetary policy to ensure that inflation stabilises at its 2% target in the medium term,” the ECB said in its monetary policy statement.
Following the decision, which takes effect on September 16, 2026, the deposit facility rate climbs from 2.25 percent to 2.50 percent, the main refinancing rate rises from 2.40 percent to 2.65 percent, and the marginal lending facility rate increases from 2.65 percent to 2.90 percent. Eurozone inflation climbed to 3.3 percent in August, resting well above the central bank’s medium-term target of 2 percent. Companies may pass these higher transport and distribution costs to consumers, pushing up food, services, and prices, and higher rates seek to break this chain by curbing borrowing, spending, and demand.
In its updated staff projections, the European Central Bank expects headline inflation to average 3.0 percent in 2026, 2.5 percent in 2027, and 2.1 percent in 2028. Economic growth across the eurozone is projected at 0.9 percent for 2026, 1.4 percent for 2027, and 1.5 percent for 2028. Markets see nearly a 90 percent probability of another increase this year, though the ECB will assess inflation, wages, energy prices, and growth at every meeting rather than follow a fixed path.
Gold Weathering Initial Selling Pressure Amid Shifting Rate Expectations
Gold prices weathered the European rate hike with limited selling pressure. Spot gold traded at €3,760.33 an ounce, down 0.62 percent, while dollar-denominated spot gold traded at $4,367 an ounce, down 0.77 percent on the day. Throughout the week, the precious metal traded largely between $4,325 and $4,425 an ounce, holding onto a majority of its recent rally. In 2026, gold has been a tough trade to time right, falling from a 10-year high over $5,300 an ounce that it reached early in the year by as much as 18%, according to Goldprice.org. However, last week marked the precious metal’s best week since January, while gold mining stocks experienced their hottest five-day run since 2008. Even with its recent dramatic moves, the price of gold is still higher by over $1,000 in the past one-year period.
Gold is the new gold,
said Pippa Malmgren, a former Special Assistant to President George W. Bush and member of the National Economic Council. Malmgren noted that what has attracted investors to gold has not changed, as many are scared that fiscal spending is out of control in the U.S. and that growth will be weak everywhere else. This implies inflation,
Malmgren said, adding that the Trump administration’s pursuit of expensive foreign wars and its embrace of cryptocurrencies both add to uneasiness among investors. This makes nervous investors turn to conservative methods for preserving value, such as buying gold,
Malmgren said. Central banks around the world are expanding their gold holdings, signaling a loss of confidence in fiat money, led by continued buying of gold by China.
Adding to the macro backdrop, Patrick Kennedy, founder and managing partner of Hartford, Connecticut-based AllSource Investment Management, observed the wider central bank buying trends. Central banks never stopped buying,
said Patrick Kennedy. Furthermore, July CPI data helped ease immediate concerns about another Federal Reserve rate hike, supporting gold as headline inflation held at 3.4 percent year over year and core CPI eased to 2.5 percent. Thursday’s PPI report delivered a mixed inflation signal, as headline producer prices were flat while the measure excluding food, energy, and trade services rose 0.4 percent month over month.
Currency Markets React as the U.S. Dollar Rebounds
The policy divergence between Frankfurt and Washington reverberated across foreign exchange markets on Thursday. The U.S. dollar climbed against major currencies, snapping a three-session losing streak as it tracked rising global bond yields and rebounding oil prices. The dollar index rose 0.34 percent to 99.12.
The euro slipped following the expected European rate increase, trading down 0.28 percent against the greenback at $1.1599. Against the Swiss franc, the dollar strengthened by 0.42 percent to 0.813.
While higher interest rates may initially support the European currency by attracting capital, analysts note that persistent concerns over expensive borrowing damaging regional economic growth could cap further gains. Meanwhile, the rupee will be influenced more by crude oil, the dollar index, and the U.S. Federal Reserve, as global markets navigate ongoing Middle East developments and central bank policy paths.
