Markets see door wide open for more ECB rate cuts on tariff hit

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London: Traders clearly saw from the European Central Bank (ECB) on Thursday that even more significant interest rates would be betrayed, believing that if trade tensions eliminate a critical economy, the central bank would further reduce the policy.

The ECB has deducted this cycle by 25 % by 25 points (BPS) for the seventh time, so that the already struggling euro zone economy has been strengthened, which has been abolished by President Donald Trump on April 2 since mutual rates.

The euro was weakened and the production of official bonds in the block declined sharply when traders reacted to the Davish ECB message. It emphasized the vision of a deteriorating growth due to the rise of “extraordinary uncertainty” due to trade tensions and removed a reference to the “ban” rates from its policy statement.

The latter will usually be seen gradually indicating the cuts, but ECB chief Christine Lagarde assisted him as a relief, explaining that the bank’s policy stand against the impartial rate during the economic shock would be “meaningless”.

The decision was unanimous, while a few weeks ago, several governors may have discussed for a break, a sign of how policy makers have seriously threatened the economy. It all suggests that “ECB needs it to be working.”

According to LSEG data, traders are now seeing a 75 % possibility of a decline in June before the ECB decision, while pricing from the ICAP has shown about 90 % of June’s move.

According to the LSEG, at the end of the year, they deduct the rate of 65 BPS, which is more than 55 before the decision, which means that they now calculate the deductions at three rates instead of two.

On the contrary, this year, less likely than the possibility of another move and the price of the possibility of increasing 2026 after the March meeting, as investors have made a condition of promoting economic growth and inflation on Germany’s historic financing.

The production of Germany’s two -year bonds, which is sensitive to financial policy expectations, has lost 7bps and Italian equality since 2022. Bond production is moved upside down with prices.

What inflation?

Although the impact of inflation on inflation seems less clear than growth, the heavy market indicates further expansion after Trump’s latest tariff announcement.

The euro, which was nearing equality against the dollar in February, has increased by more than 9.0 % since the beginning of March, which will cost close to $ 1.135, with import costs. It trades at a height at all times based on the weight of the trade.

In the meantime, oil has decreased by about 10 percent of LCOC1 this month and China, which is the largest source of European Union imports, is taking the largest hit from tariffs.

Markets have raised any concerns around inflation, with a significant gauge of long -term expectations that the ECB also properly shows inflation at the ECB’s 2.0 % target. This is less than 2.2 % in March.

Some economists emphasize the danger that inflation will fall below the ECB target. For example, City has said before the ECB meeting that next year it saw an increase in prices 1.6 percent and 1.8 percent in 2027.

This is a potential headache for the ECB that struggled for years with target inflation before the Coid 19 pandemic diseases. A widespread estimates about the ECB rate talk on a scale of uncertainty, which can keep the euro zone markets unstable.

In fact, some ECB policy makers have seen more likely to decrease interest rates in June, but other economic indications are far from deciding, sources told Reuters.

In the markets, pricing had increased substantially by some analysts. Steve Raider, a portfolio manager of Aviva Investors, said markets now reflect the negative risk of ECB rates, so now the firm was neutral on European bonds, while Nordia expects the ECB rates only once again 2.0 percent.

Barclays, however, expects the ECB to reduce the rates by 1.25 % by October, providing markets to deductions more than expected.