The ECB is set to cut rates again, but what will it do next? After surging, EUR/USD is waiting for the next piece of news.
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ECB deals with tariff uncertainty, massive defense spending
The European Central Bank (ECB) is widely expected to cut interest rates by 25 bps again. Members of the Governing Council have been telegraphing this decision for weeks, so the impact of this loosening is fully priced.
Will the ECB continue slashing borrowing costs? The stronger euro exchange rate further reduces inflation by lowering the costs of imported goods. On the other hand, fresh US tariffs could lift costs, and prices beyond imports could keep inflation up.
If US President Donald Trump’s policies—and the bloc’s countermeasures— continue escalating, the economies could suffer, pushing prices down rather than up.
In addition, the Frankfurt-based institution will need to assess the impact of new fiscal spending in the Eurozone, led by a German defense splurge.
ECB President Christine Lagarde may deflect any questions about the next moves and plan on the bank’s upcoming forecasts due with the June decision.
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(This story was corrected on June 6 at 07:45 GMT to say that the European Central Bank is set to cut interest rates for the first time since 2019, not 2020.)
