ECB expected to trim rates, Euro edges lower

The euro has edged lower ahead of today’s rate annoucement from the European Central Bank. In the European session, EUR/USD is currently trading at 1.0396, down 0.23% on the day.

ECB projected to lower rates to two-year low

The European Central Bank is widely expected to deliver a 25-basis point rate cut at today’s meeting, which would bring the deposit rate to 2.75%. This would be the lowest rate since December 2022. The ECB has telegraphed its intention to cut at today’s meeting, which should mean that the reaction in the financial markets will be muted. Investors will be monitoring the rate statement and President Lagarde’s press conference for any change in the ECB’s policy stance.

The ECB has been aggressive in its easing cycle, as today’s expected cut would be the fifth since June 2024. What’s next? The central bank is under pressure to continue lowering rates for domestic and external reasons, and the markets are looking at three more reductions in 2025, which would bring the deposit rate to 2%. With the Federal Reserve looking at only one or two rate cuts this year, the US/Europe rate differential will likely widen, which would push the euro closer to parity.

The eurozone economy is in trouble and among the largest economies in the bloc, only Spain is performing well. There is political instability in Germany and France which is only adding to market nervousness over the eurozone. As well, the growing threat of tariffs from US President Trump could further dampen eurozone growth and destabilize the financial markets. The ECB may need to cut faster and deeper if Trump hits the eurozone with tariffs.

Fed holds rates, as expected

The Federal Reserve maintained the benchmark rate at a range of 4.25-4.5%, as expected. It was the first hold after three straight rate cuts. Fed Chair Powell sounded hawkish and stated that the Fed was “in no hurry” to lower rates. The markets are expecting one or two cuts this year and Bank of America recently said that the easing cycle could be over and the next move will likely be a rate cut. President Trump responded angrily to the rate announcement, saying that the Fed had done a “terrible job” and was responsible for inflation.

EUR/USD technical

EUR/USD is testing support at 1.0415. Below, there is support at 1.0387.

There is resistance at 1.0449 and 1.0477.