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07/06/24
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EUR Flat After ECB Cuts Rates To 3.75%
On Friday, the euro drifted, and EUR/USD traded at about 1.0892, up 0.04% for the day in the European session. There may be some movement by the euro in the North American session after the release of US nonfarm payrolls.
The ECB cut rates on Thursday and reduced the deposit rate by 0.25% to 3.75%. This came after five consecutive months of a high rate of 4.0%.
Although the ECB’s steep rate-hiking cycle has reduced inflation levels, policymakers were hesitant to reduce rates until yesterday, worrying that inflation may rebound after cutting rates.
The combination of a weak eurozone economy and lower inflation led to the central bank finally lowering rates and the move was widely expected. This resulted in the euro showing a muted reaction and only gaining slightly after the rate decision.
At her press conference after the meeting, ECB President Lagarde said it was very likely that the rate cut was the beginning of “dialing back” rates. She however stressed that rate decisions would depend on the data.
The ECB will likely pause in July and the markets have priced in a 60% chance of a cut in Sept. The ECB will want to evaluate the effect of the rate reduction on economic activity, especially on inflation.
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