Inflation, growth, exchange rate to consider the next rate change
The rating agency does not expect any ECB rate cut this year, but the ECB will keep its options open. This year or at the end of next year is easy rather than tightening bias. The next change of the deposit rate from its current 2% will host the dynamics of inflation, US-EU trade relations, the development trajectory of the economy and exchange rate. Euro has strengthened 13% against the dollar this year.
Any steps above 1.20 against the dollar can provoke the concerns around deflation risk and competition. As the main alternative reserve currency for the dollar, the Euro has benefited from the uncertainties around the American trade and fiscal policy and made a deliberate American strategy to devaluate the dollar to reproduce trade.
Another factor that can be rapidly important is American policy. The US rate cut plus plus market and re -starting political pressure for ease of ease can lead to increasing pressure on ECB.Figure 1If uncontrolled, a strong euro can reduce inflation further, potentially push it below the target and force the ECB to respond.
Figure 1. Federal Reserve saw moving forward with ECB
Official rates, %, with scope end-air estimates for 2025-26
