The European Central Bank is expected to keep interest rates unchanged for the second consecutive meeting at Thursday's policy session. Meanwhile, investors are closely watching for signals about whether the ECB will indicate that its rate-cutting cycle has concluded.

ECB President Lagarde's hawkish stance in July dampened market expectations for further monetary easing by the central bank. Subsequently, the US-EU trade agreement, combined with the eurozone's solid economic performance, has reduced the ECB's immediate need for action. Guy Miller, Chief Market Strategist at Zurich Insurance Group, noted: "ECB policymakers are currently quite comfortable with maintaining the status quo."

Here are five key issues the market is monitoring:

1. What will the ECB do this Thursday? The ECB is expected to maintain its deposit facility rate at 2% unchanged on Thursday. Since the last meeting, eurozone inflation has been slightly above expectations, first-quarter economic growth was double the ECB's forecast, and the trade agreement with the US has reduced uncertainty. Therefore, policymakers have neither reason to cut rates now nor to reveal their next move prematurely. Simon Wells, Chief European Economist at HSBC, stated: "They want to deliberately maintain opacity regarding future rate decisions. So overall, that's what we'll get."

2. Has the US-EU trade agreement changed the economic outlook? At first glance, the impact appears limited. Lagarde indicated that the EU's 15% tariff agreement doesn't differ significantly from the ECB's previously established 10% baseline expectation. Some economists warn that the economic impact of tariffs remains uncertain and will gradually emerge over the coming months, with the risk of further tariff escalation. Carsten Brzeski, Global Head of Macro at ING Groep NV, commented: "My level of criticism or skepticism about this agreement is probably stronger than the ECB's stance will be at the meeting."

3. Has the ECB's current rate-cutting cycle ended? Not necessarily. Several policymakers haven't ruled out further action, and there remains internal disagreement within the ECB about whether inflation will be above or below expectations. Surveyed economists believe the ECB has concluded its rate-cutting cycle. Traders, however, see approximately a 70% probability of one more rate cut by next summer. Those believing the cutting cycle has ended point to Lagarde setting a high threshold for further action, requiring significant deterioration in economic prospects for new measures. Some even anticipate that considering Germany's stimulus measures, the ECB's next move might be a rate hike. However, factors such as unexpectedly severe economic impact from tariffs, bond market pressure, US rate cuts boosting the euro, or lower inflation could prompt the ECB to resume rate cuts. The ECB expects inflation to fall significantly below target levels next year. Additionally, the ECB's latest economic forecasts are closely watched. Economists generally expect modest upward revisions to 2025 growth and inflation expectations, though views on next year are more divergent.

4. What does France's political turmoil mean for the ECB? This represents another source of uncertainty, but it's too early to influence policymakers' thinking. The French government is trying to garner support for unpopular austerity measures but will likely fail in Monday's confidence vote. If markets become more nervous, attention may refocus on whether the ECB will use its Transmission Protection Instrument (TPI) to purchase bonds. This tool is designed to support countries facing debt pressure through no fault of their own, though it's unclear whether France qualifies. Analysts suggest early elections could widen the France/Germany 10-year government bond yield spread from the current 76 basis points to about 90 basis points. However, similar spread levels last year didn't prompt ECB TPI activation, nor was there serious contagion to other countries, so the likelihood of ECB action remains low.

5. Is the ECB concerned about central bank independence? Undoubtedly. Lagarde stated that any attempt by the US government to remove Fed Chair Powell or Governor Cook would pose a "very serious threat" to the global economy. Policymakers and economists warn that if the Federal Reserve succumbs to Trump administration demands for rate cuts, it could fuel inflation, while tighter financial conditions would transmit to the eurozone, potentially boosting the euro. Guy Miller, Chief Market Strategist at Zurich Insurance Group, emphasized: "This is about financial stability. Without an independent Federal Reserve, that's the real risk."