Forex overview. ECB Shows Increased Sense of Urgency To Cut Rates Further – ForexNews.PRO
Following the European Central Bank’s decision to lower interest rates by 25 basis points, ECB President Christine Lagarde conveyed a heightened sense of concern during the subsequent press conference, citing persistent trade disputes and growing downward pressure on inflation.
The ECB’s initial strategy, which began in June of the previous year and involved a carefully calibrated effort to gradually ease monetary policy restrictions, has evolved into a mission to avert excessive disinflation. The decision, which was largely anticipated, lowers the deposit rate to 2.25% in light of recent events, which include rising trade tensions, unprecedented policy uncertainty, and the strengthening of the euro.
The ECB described its monetary policy position as “becoming meaningfully less restrictive” back in March. This phrase was removed today without being replaced by anything else. Christine Lagarde, the president of the ECB, stated at the news conference that evaluating any level of restrictiveness was currently useless. In our opinion, she correctly rejected the use of neutral interest rates—a framework that may have worked in a stable environment but falls short in the present one—by emphasizing that the monetary policy stance is always assessed in comparison to this standard. We continue to predict that the ECB will reduce the deposit rate to 1.75% by September after today’s meeting.
The eurozone’s concerns about growth have been rekindled by US tariffs and the ongoing back-and-forth, clearly offsetting any previous optimism that had arisen from the German fiscal policy U-turn, at least in the near term. The disinflationary effects of the current trade tensions on the eurozone have been amplified by the strengthening of the euro and the fall in energy prices.
It is not just the bilateral euro-dollar exchange rate that has increased disinflationary pressures, but also the trade-weighted exchange rate, which has reached a record high. As a result, the ECB, which looked hesitant to decide between a pause and a cut only a few weeks ago, cut rates today for the seventh time since June last year.
