ECB delivers 'bleak assessment' of economy following rate cut
|The euro has come under some mild selling pressure today after the ECB struck a distinctly dovish tone during its latest communications.
While the move in rates was widely expected, and fully priced in by markets, the statement dropped a long-held reference that policy would need to stay restrictive. We see this as another clear indication that attention among policymakers has shifted away from controlling inflation, which now appears broadly in check, and towards supporting Euro Area economic activity.
The ECB delivered a bleak assessment of the economy in its communications, with President Lagarde warning that growth momentum was slowing, while nodding at the downside risks posed by greater trade restrictions.
The revised GDP projections were also shifted downwards, with policymakers seeing yet another year of near stagnation in 2025, even without taking into account the impact of the Trump tariffs. At the same time, the core inflation forecasts were left unrevised, in what can only open the door to further aggressive interest rate cuts from the ECB in the coming months.
Today’s communications make us increasingly confident in our call for a lower euro against most currencies in 2025. The domestic economy remains fragile, Trump’s tariffs loom on the horizon and the ECB appears in a hurry to lower rates to neutral, or below.
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