
ECB expected to hold rates as Trump tariff uncertainty lingers
The 26 members of the ECB's governing council will meet just over a week before an August 1 deadline set by US President Donald Trump for the imposition of his government's punitive tariffs.
Trump has threatened to triple a basic tariff on imports from the EU to 30 percent if Brussels does not cut a deal by the end of the month, casting uncertainty over the future of transatlantic trade.
But the ECB was expected to hold tight on rates instead of preempting the outcome of negotiations, pausing a series of cuts that goes back to September.
The central bank has reduced its benchmark rate a total of eight times since June last year and at each of its last seven meetings, bringing it down to two per cent.
The rapid reduction in rates has come as eurozone inflation has fallen back towards the ECB's two-percent target from the double-digit highs seen in 2022.
In June, eurozone inflation sat exactly on the ECB's target and was forecast by officials at the central bank to even out at two percent for the year.
'More clarity'
The ECB would "almost certainly leave interest rates unchanged" at the conclusion of its monetary policy meeting on Thursday, analysts from Italian bank UniCredit said in a note.
"The central bank will now want to have more clarity on the trade outlook before it considers adjusting its policy further," they said.
Despite the murky outlook, the ECB was in a "good place" to deal with what comes next, executive board member Isabel Schnabel told financial news service Econostream Media this month.
And with the euro area economy showing some signs of life despite Trump's threats on tariffs, "the bar for another rate cut is very high", she said.
Euro area factory output has grown four months in a row and the bloc's manufacturing PMI -- a survey-based measure of manufacturer's overall health -- rose in June to its highest level since August 2022.
The improving picture painted by recent indicators could, however, be shattered were Trump to follow through with additional tariffs on top of steep existing levies on auto manufacturers, steel and aluminium.
Euro strength
The sabre-rattling from the Oval Office over trade -- and Trump's repeated attacks on the US Federal Reserve's independence -- have otherwise had the impact of weakening the dollar against the euro.
Were the euro to rise much further it would make matters "much more complicated", ECB Vice President Luis de Guindos told Bloomberg TV this month.
A stronger single currency brought with it the risk of undershooting the ECB's inflation target by making imports cheaper and cooling the economy, while making European exports more expensive.
Already, the ECB's forecasts published last month predict inflation to fall to 1.6 percent in 2026, before recovering to two percent the following year.
A strong euro meant rate cuts later in the year were a matter of "when and by how much and not if", ING bank analyst Carsten Brzeski said.
The question would get "more attention" at forthcoming ECB gatherings, Brzeski said, but the uncertainty over US tariffs argued in favour a "wait-and-see approach".
Trump had upped the threatened level of tariffs on EU exports to the United States since the ECB's last meeting but where they would land after August 1 was uncertain.
With the EU locked in talks with Washington to avoid higher tariffs, the necessary "clarity is unlikely to emerge by next Thursday", UniCredit analysts said.
A pause was likely before another cut later in the year, perhaps already in September, the first meeting after the summer, they said.
Hashtags

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles


The National
7 hours ago
- The National
UAE and US working to 'get chips moving' after AI deal
After this week's debut of the White House's Artificial Intelligence Action Plan, the UAE is ready to expedite its AI partnership with the US. This follows President Donald Trump's visit to Abu Dhabi in May, when he announced the US-UAE AI Acceleration Partnership, which included plans for a 5GW UAE-US AI Campus. Those plans allow for the UAE to obtain powerful CPUs and GPUs from the US which are necessary to build up AI infrastructure. Once completed, part of the campus, dubbed Stargate UAE, will be among the largest AI data centres in the world. Security guarantees to protect the UAE AI technology from falling into the wrong hands were are major aspect of the deal. Also bolstering the deal, Mr Trump's much-anticipated AI plan, unveiled on Wednesday, seeks to reduce regulatory barriers in place to build up AI infrastructure in the US, while pushing for increasing the prevalence of US AI technology around the world. That bodes well for the UAE, and other countries with similar AI aspirations. It's also a sharp contrast to the former president Joe Biden's policies. His administration sought tighter export controls on US chips to prevent them from being used in China. 'The UAE welcomes President Trump's AI Action Plan and is ready to fast track our strategic AI partnership with the US,' Yousef Al Otaiba, UAE Minister of State and ambassador to the US, said on Wednesday. 'As a trusted partner, we are working closely with leading US companies to adopt and scale American technology in the UAE and beyond.' Some pundits aren't sold however, and they're trying to exert influence to slow the US-UAE AI Acceleration Partnership. In an opinion article in The Washington Post, Christopher Chivvis and Sam Winter-Levy from the Carnegie Endowment, a US-based think tank, expressed concern about China somehow getting access to the US AI technology, among other things. 'To now approve the offshoring of the data centres that will house so many of the resulting chips to another conflict-prone region would be a major unforced error – one that will prove difficult to reverse,' they wrote. The UAE has addressed this by committing to a $1.4 trillion investment framework for AI infrastructure in the US. Regardless, the Wall Street Journal also reported that some in the White House have sought to take a closer look at the recently announced UAE deal, amid concerns about US technology diffusion. But last week, the White House cryptocurrency and artificial intelligence adviser beat back those concerns, and reaffirmed the US partnership with the UAE. 'These are countries that are long-standing partners and allies of the US going back many years,' White House AI chief David Sacks said during a round-table discussion at the Pennsylvania Energy and AI Summit, referring to the UAE. Mr Sacks added that the Trump administration thought that if US technology wasn't used in AI projects around the world, China-owned Huawei would step in to fill the vacuum. 'We don't want to create demand for Huawei,' he explained, also describing some of the chip smuggling scenarios that have become prevalent in media reports as quixotic. He said the newest standard data centres technology hardware is approximately 2.4m tall, with servers weighing 1,600kg, and that it's 'very easy to see' if they're being transported. 'I know that our Gulf State partners would honour our security agreement,' he said just hours before President Trump appeared at the event in Pennsylvania. 'This is ultimately a trust-but-verify situation, and all we have to do is send an inspector to a data centre and they can count the racks,' Mr Sacks explained, reiterating that he felt the scenarios of AI hardware smuggling were 'blown wildly out of proportion.' Meanwhile, there's no indication from the White House or Department of Commerce, which is ultimately responsible for allowing the export of US technology, that criticism of the UAE deal is gaining traction. In a statement to The National, the UAE ambassador expressed continued optimism about the AI plans with the US announced back in May. 'Signed just 60 days ago in Abu Dhabi, the UAE-US investment and Ai partnership will deliver enormous benefits to both countries,' Mr Al Otaiba said. 'High level teams have been actively engaging to advance the agreement, to get chips moving and to accelerate technology co-operation.'


The National
9 hours ago
- The National
Trump to tour Federal Reserve as war on Chair Powell escalates
US President Donald Trump was set to tour the site of the Federal Reserve's headquarters on Thursday, a significant escalation in his relentless pressure campaign on Fed Chair Jerome Powell to cut interest rates. The White House has framed the visit to tour the renovation of two Fed buildings, whose costs have swelled from an initial $1.9 billion to roughly $2.5 billion. Some believe the Trump administration is attacking the renovation costs as a pretext to fire Mr Powell. Presidential visits to the Federal Reserve are rare, with the commander-in-chief generally taking precautions to preserve the central bank's autonomy. The last president to visit the Fed was George W Bush in 2006 when he swore in Ben Bernanke as chair. Other Trump aides are expected to tour the Fed's renovations with him. It was not clear if Mr Trump will meet Mr Powell. 'The Federal Reserve is working with the White House to accommodate their visit,' a Federal Reserve spokesperson told The National. Mr Trump has grown increasingly frustrated with the Fed's extended rate-cut pause. The US central bank has held its interest target rate range steady at 4.25 to 4.50 per cent this year due to uncertainty surrounding tariffs. Recent data have shown that the effects of tariffs are beginning to creep into the US economy. The Labour Department reported last week that inflation had ticked up in June. Underlying data showed that prices in everyday items such as household appliances, toys and apparel are being passed down to consumers. Some economists, however, argue that the Fed should begin cutting rates soon to help protect the labour market. Unlike most central banks, the Fed holds a dual mandate of price stability and full employment. The visit also comes less than a week until the Fed's next meeting, where it is again expected to hold rates steady. But Mr Trump has repeatedly called for the Fed to lower interest rates by as much as 3 percentage points to around 1.25 per cent. He has said doing so could help service the US debt, a concept known as fiscal dominance. Projections released by the Fed in June signalled that the central bank expects to cut rates twice this year, although it is unclear when. Traders currently expect the Fed to resume rate cuts in September, according to CME Group data. Mr Powell has repeatedly said Mr Trump does not have the legal authority to fire him. And such a move would likely lead to a financial crisis as markets would question the independence of future rate moves by the central bank. Mr Powell has also said he will not resign before his term as Fed Chair expires in May 2026. The bond market was mostly subdued ahead of Mr Trump's visit, with the yield on the 10-year Treasury up 1 basis point at 4.398 per cent.


Dubai Eye
10 hours ago
- Dubai Eye
Britain, India sign landmark free trade pact during Modi visit
Britain and India signed a free trade agreement on Thursday during a visit by Indian Prime Minister Narendra Modi, sealing a deal to cut tariffs on goods from textiles to whisky and cars and allow more market access for businesses. The two countries concluded talks on the trade pact in May after three years of stop-start negotiations, with both sides hastening efforts to clinch a deal in the shadow of tariff turmoil unleashed by U.S. President Donald Trump. The agreement between the world's fifth and sixth largest economies aims to increase bilateral trade by a further 25.5 billion pounds ($34 billion) by 2040. It is Britain's biggest trade deal since it left the European Union in 2020, although its impact will be a fraction of the effect of leaving the orbit of its closest trading partner. For India, it represents its biggest strategic partnership with an advanced economy, and one which could provide a template for a long mooted deal with the EU as well as talks with other regions. It will take effect after a ratification process, likely within a year. British Prime Minister Keir Starmer said the deal would bring "huge benefits" for both countries, making trade cheaper, quicker and easier. "We've entered a new global era, and that is one that requires us to step up, not to stand aside... by building deeper partnerships and alliances," Starmer said. Modi said the visit would "go a long way in advancing the economic partnership between our nations". They also agreed a partnership covering areas such as defence and climate, and said they would strengthen co-operation on tackling crime. Under the trade agreement, tariffs on Scotch whisky will drop to 75 per cent from 150 per cent immediately, and then slide to 40 per cent over the next decade, according to the British government. On cars, India will cut duties to 10 per cent from over 100% under a quota system that will be gradually liberalised. In return, Indian manufacturers will gain access to the UK market for electric and hybrid vehicles, also under a quota system. The ministry has said 99% of Indian exports to Britain would benefit from zero duties under the deal, including textiles, while Britain will see reductions on 90% of its tariff lines, with the average tariff UK firms face dropping to 3 per cent from 15 per cent. While it is Britain's biggest deal since Brexit, the projected boost to British economic output, of 4.8 billion pounds a year by 2040, is small compared to the country's gross domestic product of 2.6 trillion pounds in 2024. The Office for Budget Responsibility (OBR) has forecast that UK exports and imports will be about 15 per cent lower in the long run compared with if Britain had stayed in the EU. In its first year in power, Britain's Labour government has launched a reset of ties with the EU in order to smooth trade friction, while also clinching some tariff relief from the United States and the India trade deal. "In an era of rising protectionism, today's announcement sends a powerful signal that the UK is open for business," said Rain Newton-Smith, the chief executive of the Confederation of British Industry. The India deal will also facilitate easier access for temporary business visitors, though visas are not covered. Britain and India also agreed to ensure workers no longer have to make social security contributions in both India and Britain during temporary postings in the other country. Under the trade deal, British firms will be able to access India's procurement market for projects in sectors such as clean energy, and it also covers services sectors such as insurance. India didn't succeed in its efforts to get an exemption from Britain's Carbon Border Adjustment Mechanism (CBAM) - which could levy higher taxes on polluters from 2027 - as part of the deal. Meanwhile talks over a separate bilateral investment treaty are continuing.