The European Central Bank (ECB) announced a 25 basis point interest rate cut in June, reducing the deposit facility rate from 2.25% to 2.00% and the main refinancing rate from 2.40% to 2.15%. This marks the fourth rate cut by the ECB this year and the eighth consecutive rate cut since last year. While central banks in other countries, such as the Bank of Canada, have chosen to pause interest rate cuts to observe economic trends in light of US President Trump’s aggressive foreign policy, the ECB’s continued rate cuts indicate a more pessimistic outlook on the impact of US policies.
ECB President Christine Lagarde stated at a press conference that “the downside risks to economic growth still exist.” The further escalation of global trade tensions and related uncertainties may curb exports, drag down investment and consumption, and thereby reduce the growth of the Eurozone. Lagarde also noted that “the growth outlook for the remainder of this year is relatively weak,” particularly in the short term, with trade policy uncertainties expected to put pressure on business investment and exports.
From Lagarde’s remarks, it is clear that she is rather pessimistic about the economic outlook for the Eurozone in the second half of this year. Notably, Lagarde views the appreciation of the euro as a negative factor for the economy, as a stronger euro would curb commodity exports. As of now, trade negotiations between the European Union and the United States are still ongoing. If the United States fails to withdraw its import and export policies in April, the economic development of the European Union will be seriously hindered.
The ECB’s concerns over US trade policy are likely to prevent it from halting the pace of interest rate cuts. During the Q&A session with journalists, some even raised the question of “cutting interest rates by 50 basis points at one time,” indicating that market participants expect the ECB to implement more significant rate cuts.
The annual rate of core CPI in the Eurozone in May was 2.3%, much lower than the previous value of 2.7%. The sharp drop in inflation rate data is also a significant reason why the ECB is eager to cut interest rates. Lagarde believes that the inflation rate in the Eurozone will stabilize above 2%. However, wage growth after the Eurozone negotiations in 2025 has further slowed down and is expected to fall below 3% between 2026 and 2027. Coupled with the impact of falling energy prices and the appreciation of the euro, the inflation rate data in the Eurozone may not remain stable. This is a key basis for the market’s expectation that the ECB will cut interest rates on a larger scale.
Near the 0.764th percentile of the previous cycle’s correction band and higher than the 0.618th percentile, the trend characteristics are significant. The next resistance level is near the medium-term high of 1.1572, and the probability of touching this level is relatively high. The euro and the US dollar have an inverse fluctuation relationship. As Trump’s various aggressive policies may lead to a recession in the US macroeconomy, the probability of the weak cycle of the US dollar index continuing is relatively high, and the euro will be boosted in the opposite direction.
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