ECB cuts rates despite inflationary pressures

Market reactions and forecasts

Money markets had fully anticipated the 25 basis point cut at the June meeting. This is the first rate cut since September 2019, when the deposit facility rate was in negative territory. Current market expectations only suggest further rate reduction this year. However, economists polled by Reuters forecast two additional cuts over the same period.

Key indicators to monitor

Investors will closely follow ECB President Christine Lagarde’s press conference, scheduled for 12:45 GMT, to find out more. Particular attention will be paid to the new quarterly projections of economic growth and inflation established by the ECB services.

Global context and comparisons

The ECB’s recent move puts it ahead of the US Federal Reserve in terms of rate cuts, as the Fed continues to battle high US inflation. ECB President Lagarde stressed that their policy decisions “depend on the data and not on the Fed.” Canada notably reduced its interest rates, becoming the first G7 country to do so in the current cycle, followed by Sweden and Switzerland.

Market Forecast

Given the ECB’s proactive approach to monetary policy moderation and persistent inflation challenges, the outlook for the Eurozone market is cautiously optimistic. Traders should prepare for possible further rate cuts as the ECB continues to adjust policies in response to economic data.

Overall, the ECB’s rate cut reflects a strategic shift to balance inflation control and economic support, signaling potential opportunities for investors in eurozone markets.

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