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The Journal
6 days ago
- Business
- The Journal
ECB expected to hold rates as more Trump tariffs loom
THE EUROPEAN CENTRAL Bank looks set to keep interest rates unchanged today while the possibility of harsher US tariffs hangs in the balance. A pause would bring an end to a string of cuts that dates back to September last year, as the ECB progressively lowered borrowing costs in response to sinking inflation. The pace of consumer price rises has settled around the central bank's two-percent target, having soared to double digit highs in the wake of the coronavirus pandemic and Russia's full scale invasion of Ukraine. But the relatively more favourable monetary policy conditions look fragile with a 1 August deadline for the possible imposition of punitive tariffs on European exports into the United States set by Trump. With Washington and Brussels still in talks over a possible tariff deal, ECB rate-setters would want 'more clarity… before considering any further adjustment to monetary policy', UniCredit analysts said. A pause would give policymakers the summer to see whether Trump follows through with his threat to slap EU exports with a flat 30-percent tariff, in addition to existing levies on cars, steel and aluminium. Higher barriers to trade risk delivering a fresh blow to the eurozone economy, and encourage the ECB to contemplate further rate cuts. 'Powder dry' After seven straight cuts and eight in total since June last year, the ECB has brought its benchmark deposit rate down to two percent from its peak of four percent in the midst of the inflation wave. 'Neither the economic data nor latest data regarding price dynamics demand an immediate response from the ECB,' according to Dirk Schumacher, chief economist at German public lender KfW. Eurozone inflation came in at exactly two percent in June and economic indicators including rising factory output have encouraged more optimism about the health of the economy. Advertisement The ECB would also want to 'keep some powder dry for the case of emergency' if Trump were to apply harsh tariffs, Berenberg analyst Felix Schmidt said. 'A further escalation in the trade dispute would have a significant negative impact on the eurozone economy,' leading to more rate cuts, Schmidt said. The increased strength of the euro against the dollar as a result of tariff uncertainty could also encourage policymakers to further soften the ECB's monetary policy stance. The euro has surged almost 14 percent against the dollar since the start of the year, boosted by investor moves to dump US assets in the face of Trump's impetuous policymaking and attacks on the US Federal Reserve. Strong euro A stronger euro would make imports cheaper and further suppress inflation. The ECB is already predicting the indicator to dip to 1.6 percent in 2026 before returning to target in 2027. Investors will be listening closely to ECB President Christine Lagarde's comments in Frankfurt at 12:45pm for indications of what could come next. Lagarde dropped a strong hint that the ECB's cutting cycle was 'getting to the end' at the last meeting in June, while stressing a data-dependent and meeting-by-meeting approach in the face of uncertainty. If an expected pause is confirmed Thursday, observers will turn their attention to how ECB thinking is developing ahead of its next gathering in September. 'A relatively quiet July meeting could feature some heightened scrutiny on how comfortable policymakers would be with another euro rally,' according to ING bank analyst Carsten Brzeski said. Worries over currency fluctuations 'may not make their way to official communication, but could help tilt the balance to a more dovish overall tone,' Brzeski said. 'But with the many uncertainties, we doubt markets will get more clarity about the timing during this meeting.' With reporting by – © AFP2025 Readers like you are keeping these stories free for everyone... A mix of advertising and supporting contributions helps keep paywalls away from valuable information like this article. Over 5,000 readers like you have already stepped up and support us with a monthly payment or a once-off donation. Learn More Support The Journal
France 24
7 days ago
- Business
- France 24
ECB expected to hold rates as more Trump tariffs loom
A pause would bring an end to a string of cuts that dates back to September last year, as the ECB progressively lowered borrowing costs in response to sinking inflation. The pace of consumer price rises has settled around the central bank's two-percent target, having soared to double digit highs in the wake of the coronavirus pandemic and Russia's full scale invasion of Ukraine. But the relatively more favourable monetary policy conditions look fragile with an August 1 deadline for the possible imposition of punitive tariffs on European exports into the United States set by Trump. With Washington and Brussels still in talks over a possible tariff deal, ECB rate-setters would want "more clarity... before considering any further adjustment to monetary policy", UniCredit analysts said. A pause would give policymakers the summer to see whether Trump follows through with his threat to slap EU exports with a flat 30-percent tariff, in addition to existing levies on cars, steel and aluminium. Higher barriers to trade risk delivering a fresh blow to the eurozone economy, and encourage the ECB to contemplate further rate cuts. -'Powder dry'- After seven straight cuts and eight in total since June last year, the ECB has brought its benchmark deposit rate down to two percent from its peak of four percent in the midst of the inflation wave. "Neither the economic data nor latest data regarding price dynamics demand an immediate response from the ECB," according to Dirk Schumacher, chief economist at German public lender KfW. Eurozone inflation came in at exactly two percent in June and economic indicators including rising factory output have encouraged more optimism about the health of the economy. The ECB would also want to "keep some powder dry for the case of emergency" if Trump were to apply harsh tariffs, Berenberg analyst Felix Schmidt said. "A further escalation in the trade dispute would have a significant negative impact on the eurozone economy," leading to more rate cuts, Schmidt said. The increased strength of the euro against the dollar as a result of tariff uncertainty could also encourage policymakers to further soften the ECB's monetary policy stance. The euro has surged almost 14 percent against the dollar since the start of the year, boosted by investor moves to dump US assets in the face of Trump's impetuous policymaking and attacks on the US Federal Reserve. -Strong euro- A stronger euro would make imports cheaper and further suppress inflation. The ECB is already predicting the indicator to dip to 1.6 percent in 2026 before returning to target in 2027. Investors will be listening closely to ECB President Christine Lagarde's comments in Frankfurt at 2:45 pm (1245 GMT) for indications of what could come next. Lagarde dropped a strong hint that the ECB's cutting cycle was "getting to the end" at the last meeting in June, while stressing a data-dependent and meeting-by-meeting approach in the face of uncertainty. If an expected pause is confirmed Thursday, observers will turn their attention to how ECB thinking is developing ahead of its next gathering in September. "A relatively quiet July meeting could feature some heightened scrutiny on how comfortable policymakers would be with another euro rally," according to ING bank analyst Carsten Brzeski said. Worries over currency fluctuations "may not make their way to official communication, but could help tilt the balance to a more dovish overall tone," Brzeski said. © 2025 AFP
The Journal
05-06-2025
- Business
- The Journal
European Central Bank expected to cut interest rates later today
THE EUROPEAN CENTRAL Bank is expected to cut interest rates by a quarter of a percentage point today. It would be the bank's eighth interest rate cut in the last 12 months, with officials having shifted focus from taming consumer price rises to easing pressure on the sluggish eurozone economy. Expectations that the Frankfurt-based institution will deliver a fresh rate cut were strengthened this week when data showed eurozone inflation eased to 1.9% in May, faster than expected and below its 2% target. 'Any doubts about an ECB interest rate cut this week have now been eliminated,' said Dirk Schumacher, chief economist at German public lender KfW. Advertisement Analysts expect another quarter-point reduction that would take the central bank's key deposit rate to 2%. The reduction would be welcome news for tracker mortgage holders, who would benefit immediately from the move, along with other borrowers. Despite falling ECB rates, Ireland is the fifth most expensive country in the eurozone for mortgages, with Irish homebuyers paying 0.46 percentage points more than the average interest rate on new mortgages across the euro zone, according to a recent Central Bank report. Observers will be on the lookout for any hints from ECB President Christine Lagarde at her press conference that policymakers could hit pause at their next meeting in July, as some expect. The ECB's series of cuts stands in contrast to the US Federal Reserve, which has kept rates on hold recently amid fears that Trump's levies could stoke inflation in the world's top economy. With reporting from © AFP 2025 Readers like you are keeping these stories free for everyone... A mix of advertising and supporting contributions helps keep paywalls away from valuable information like this article. Over 5,000 readers like you have already stepped up and support us with a monthly payment or a once-off donation. Learn More Support The Journal
