The EUR successfully defended crucial levels against the USD and GBP, following a reaffirmation by the European Central Bank that it has no intentions of raising interest rates until the summer. EUR/USD maintained interim support at 1.0870, while EUR/GBP held steadfast at 0.85 for a second consecutive day, coinciding with the decision to keep all ECB lending rates unchanged.

The real source of intrigue for the foreign exchange markets was expected to be the ECB's statement, but it turned out to be a source of disappointment, as the central bank essentially replicated December's statement. The underlying message suggests that the ECB is adamantly resisting market expectations for a rate cut in the first half of 2024.

During last week's Davos conference, ECB Christine Lagarde asserted that the central bank would only contemplate rate cuts in the summer, and January's uneventful policy meeting seems to confirm this stance.

While market-implied pricing for ECB rate cuts remains unaltered, indicating no perceived 'hawkish' undertones in the unchanged policy decision, the ECB maintains its position of assessing incoming pay settlements before making any moves on interest rates. Consequently, it appears that several more months will pass before the central bank shifts its stance and signals an impending interest rate cut.

The January policy update was anticipated to be a placeholder event, with new economic projections expected to be unveiled by the central bank in March.