05.06.25 - Eyes on ECB - rate cut expected

Today at lunchtime, the European Central Bank (ECB) will announce its latest interest rate decision. Markets widely expect a 25 basis point cut, bringing the key rate down to 2.00%. This would mark the ECB’s eighth rate cut in the current cycle since June 2024.

Markets: European equity indices are slightly up this morning with the DAX trading near its all-time high (reached yesterday); European interest rates are moving sideways as well as the Euro trading slightly above 1.14 against the dollar.

My view: A 25bps cut is fully priced in, so a market driver could be the ECB’s forward guidance during the press conference when President Christine Lagarde comments on the economic outlook, inflation expectations, and maybe giving a hint on the future rate path.

Markets have run up significantly in recent weeks, leaving room for a potential correction, especially if the ECB’s tone disappoints or fails to confirm dovish expectations.

Meanwhile, yesterday’s Fed minutes already pointed to signs of a weakening US economy. As previously noted, markets continue to shrug off negative data. Therefore the critical question is, how much longer?

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