ECB set for 7th rate cut again as Donald Trump trade war rumbles on
The European Central Bank is likely to announce its seventh consecutive interest rate cut this week as the eurozone economy struggles under slowing inflation and uncertainty fueled by US President
Donald Trump
's shifting trade policies.
Prior to Trump's fluctuating tariff impositions globally, the ECB had been reducing borrowing costs in response to declining inflation rates.
Concerns about economic performance in the 20 euro-using nations have become more prominent than inflation worries, as elevated rates have affected both commercial entities and consumers.
The impact of Trump's tariffs has created additional pressure. Europe faces scrutiny due to its substantial trade surplus with the United States, raising concerns about potential negative effects on European exporters.
HSBC anticipates a rate reduction at Thursday's ECB governing council meeting, citing the eurozone's deteriorated short-term outlook following recent US tariff announcements.
Financial experts anticipate another quarter-point decrease, which would adjust the Frankfurt-based institution's primary deposit rate to two percent.
However, specialists suggest this June reduction might conclude the current sequence, with the ECB likely taking a pause in July to evaluate recent economic trends.
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The ECB's reduction strategy contrasts with the US Federal Reserve's approach, which has maintained steady rates amid concerns about Trump's tariffs potentially increasing inflation.
The EU currently faces multiple tariff levels from Trump's administration, including a 10-percent baseline rate and 25-percent duties on vehicles, steel and aluminium.
Trump has temporarily suspended higher tariffs on the EU and other trading partners during negotiations, temporarily reducing market tensions.
However, indicating ongoing trade tensions, he recently threatened a 50-percent tariff on the EU, before postponing the decision to July 9.
ECB President Christine Lagarde expressed concern in Berlin, stating that the US-led global economic structure was "fracturing". The ECB faces challenges in safeguarding the eurozone from Trump's unpredictable trade policies while maintaining stable inflation.
Eurozone inflation reached 2.2 percent in April, marginally exceeding the ECB's two-percent target.
Eurostat will release May's inflation figures on Tuesday before the ECB meeting.
Recent indicators suggest faster-than-anticipated reduction in price pressures, and the ECB is likely to revise its inflation forecasts downward on Thursday.
Analysts generally believe Trump's tariffs will further decrease eurozone inflation, particularly as China might redirect low-cost products to Europe to avoid US duties.
The ECB is expected to reduce growth projections on Thursday due to trade war effects, following the EU's recent forecast reductions. While markets await Lagarde's guidance about future ECB actions, analysts suggest current uncertainties will limit detailed revelations.
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