- The European Central Bank is prepared to make another 25 basic points cut at key rates on Thursday.
- The updated BCE projections and the press conference of President Christine Lagarde will be examined closely.
- The EUR/USD torque could move sharply depending on the ECB policy ads.
It is widely expected that the European Central Bank (ECB) reduces key interest rates for the seventh consecutive time. The decision will be announced on Thursday at 12:15 GMT.
The decision on the interest rate will be accompanied by the quarterly projections of personnel on inflation and growth, while the press conference of the ECB president, Christine Lagarde, will continue at 12:45 GMT.
The euro (EUR) could experience intense volatility in the ECBs against the US dollar (USD).
What to expect from the decision about the interest rate of the European Central Bank?
The ECB is expected to reduce the reference rate in the ease of deposit in another 25 basic points (PBS) to 2% from 2.25%, after the conclusion of the June monetary policy meeting.
The main reason behind rates reduction is the decrease in inflation towards the objective of 2% of the ECB. Data published by Eurostat showed that the harmonized consumer prices index (IAPC) in the eurozone increased by 1.9% year -on -year in May, after increasing 2.2% in April. In addition, the annual underlying inflation of the IAPC fell to 2.3% from 2.7% in the same period.
Even so, a group of ECB policies managers have manifested last month on their preference for a pause in feat cuts, given the high uncertainty about economic perspectives in the midst of the commercial war between the US and the EU.
The head of ECB policies, Robert Holzmann, said that “the ECB should pause interest rate cuts up to at least September.” The Member of the Board, Isabel Schnabel, warned of “new clashes that raise new challenges” even when disinflation is on its way. Meanwhile, the Governing Council member of the ECB and president of Bundesbank, Joachim Nagel, argued: “Given the continuous high uncertainty, therefore, we should remain cautious in monetary policy.”
In the Commercial Front, the president of the USA, Donald Trump, threatened May 23 with imposing 50% tariffs on the goods of the European Union (EU), complaining that the block of 27 members had been “very difficult to treat” in commerce and that the negotiations “did not go anywhere.” These tariffs would have entered into force as of June 1.
A couple of days later, Trump said that the United States (USA) will delay the implementation of a 50% tariff on EU imports from June 1 to July 9 to gain time for negotiations.
Last Friday, US president announced the duplication of tariffs on 50% steel and aluminum imports from 25%. The measure, which would hardly affect Europe, is supposed to enter into force as of June 4.
In the midst of persistent uncertainty on the impact of Trump’s commercial policies on the economic activity of the old continent and the continuous progress in disinflation, the BCE policy declaration, the quarterly projections of inflation and growth and the discourse of President Christine Lagarde will be examined closely in search of new clues about the next movement of interest rates of the Central Bank.
Prior to the April meeting of the ECB, TD Securities analysts said: “We expect a 25 PBS cut, with the markets and consensus converging in the same. It is likely that the projections are reduced for growth and inflation due to the developments of global commercial policy since March.”
“However, citing resilience in the economy and convergence towards the target of inflation, this cut will probably be paired with a Hawkish bias in language, suggesting a pause in July,” analysts said.
How could the ECB meeting impact on the EUR/USD?
The EUR/USD has maintained its upward impulse so far this year, thanks to the low performance of the US dollar (USD) in the face of the growing fear of an economic recession, probably driven by Trump’s tariff war.
In the face of the confrontation of the ECB, the main pair of foreign exchange is losing traction due to the renewed purchase interest observed around the USD.
The probabilities of more rates cuts in the future would increase in the event that President Lagarde or quarterly projections suggest that disinflation remains on their way despite the uncertainty related to tariffs. In this scenario, the EUR/USD could extend its correction from the maximum of six weeks. If Lagarde expresses concerns about economic perspectives, he could reaffirm this dovish vision.
On the contrary, the euro could resume its upward trend in front of the USD if the ECB indicates potential risks to inflation and lagarde suggests prudence in the future to assess the impact of tariffs, fueling the expectations of a pause in its relaxation cycle.
DHWANI MEHTA, leading analyst of the Asian session at FXSTERET, offers a brief technical perspective for the EUR/USD:
“The EUR/USD remains well above all the main simple mobile socks (SMA) while the indicator of the Relative Force Index (RSI) remains firm about 56, which suggests that the risks upward remain intact for the torque.”
“Uploaded, the immediate resistance is aligned at the maximum of six weeks of 1,1456, above which the round level of 1,1500 will be tested. The maximum of April 21, 1,1574 will be as follows in the radar of the buyers. Alternatively, healthy supports could be observed in the SMA of 21 days of 1,1285, followed by the 50 -day SMA in 1,1220 and the psychological barrier of 1,1150,” Dhwani added.
Economic indicator
ECB rate in the ease of deposits
One of the three key interest rates of the European Central Bank (ECB)the rate of ease of deposit, is the rate at which banks gain interest when they deposit funds in the ECB. It is announced by the European Central Bank in each of its eight scheduled annual meetings.
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Next publication: PLAY JUN 05, 2025 12:15
Frequency: Irregular
Dear: 2%
Previous: 2.25%
Fountain: European Central Bank
FAQS Central Banks
Central banks have a key mandate that consists in guaranteeing the stability of prices in a country or region. Economies constantly face inflation or deflation when the prices of certain goods and services fluctuate. A constant rise in the prices of the same goods means inflation, a constant decrease in the prices of the same goods means deflation. It is the Central Bank’s task to keep the demand online by adjusting its interest rate. For larger central banks, such as the US Federal Reserve (FED), the European Central Bank (ECB) or the Bank of England (BOE), the mandate is to maintain inflation about 2%.
A central bank has an important tool to raise or lower inflation: modify its reference interest rate. In precommunicated moments, the Central Bank will issue a statement with its reference interest rate and give additional reasons of why it maintains or modifies it (cut it or the SUBE). Local banks will adjust their savings and loan rates accordingly, which in turn will make it difficult or facilitate that citizens obtain profits from their savings or that companies ask for loans and invest in their businesses. When the Central Bank substantially rises interest rates, there is talk of monetary hardening. When it reduces its reference rate, it is called monetary relaxation.
A central bank is usually politically independent. The members of the Central Bank Policy Council go through a series of panels and hearings before being appointed for a position in the Policy Council. Each member of that council usually has a certain conviction on how the Central Bank should control inflation and the consequent monetary policy. Members who want a very flexible monetary policy, with low types and cheap loans, to substantially boost the economy, while comprising with inflation slightly greater than 2%, are called “pigeons.” Members who prefer higher types to reward savings and want to control inflation at all times are called “hawks” and will not rest until inflation is located at 2% or just below.
Normally, there is a president who directs each meeting, has to create a consensus between the hawks or the pigeons and has the last word when the votes must be divided to avoid a draw to 50 on whether the current policy must be adjusted. The president will pronounce speeches, which can often be followed live, in which he will communicate the current monetary position and perspectives. A central bank will try to boost its monetary policy without causing violent oscillations of the fees, the actions or their currency. All members of the Central Bank will channel their position towards the markets before a monetary policy meeting. A few days before a monetary policy meeting is held and until the new policy has been communicated, the members are prohibited from speaking publicly. It is what is called a period of silence.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
