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06/06/24
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EUR Flat as ECB Likely to Cut Rates
On Thursday, the euro showed limited movement before the rate decision by the European Central Bank later in the day. EUR/USD traded at about 1.0879, up 0.10% for the day in the European session.
The ECB will likely cut its deposit rate later in the day. The ECB has kept the deposit rate at 4.0% for five consecutive months as policymakers have been happy to stick to a “higher for longer” stance after its rate-hiking cycle.
ECB officials think conditions are right for a rate cut as they can show that the inflation rate has dropped from double-digits to lower than 3%. The ECB is sure that inflation won’t rebound after they cut rates.
That does however not mean that the massive fight against inflation is over. The 2% inflation target has shown itself to be elusive and inflation in the eurozone accelerated in May. The headline figure lifted to 2.6% from 2.4% while the core rate rose to 2.9% from 2.7%.
The ECB will not have been happy with those numbers but is still sure that inflation will continue to drop. The eurozone economy has been slow and a rate cut should boost the economy and provide consumers with some relief as they groan under the weight of high interest rates.
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