The euro weakened, falling below $1.085 after previously reaching a near five-month high. The decline follows remarks from ECB officials regarding potential economic impacts from trade tensions with the US and the possibility of further monetary easing. Market expectations for ECB rate cuts have also been revised downwards.
- The euro fell after ECB President Lagarde warned that a 25% US tariff on European imports could cut euro area growth.
- Lagarde indicated a counter-tariff would further reduce growth.
- The inflationary impact of tariffs is expected to be temporary, suggesting the ECB would not raise rates in response.
- ECB’s de Galhau emphasized the ECB has room to lower borrowing costs.
- Market expectations for ECB rate cuts have decreased to just two this year.
- The US Federal Reserve held rates steady and reaffirmed plans for two cuts this year.
The potential impact of tariffs, coupled with the possibility of further easing by the ECB, suggests a more cautious outlook for the euro. Reduced expectations for ECB rate cuts indicate a shift in market sentiment, but the acknowledgement of further easing options leaves room for potential downward pressure on the currency’s value. The contrast between potential US and Eurozone monetary policy paths will likely influence future direction.