ECB finally aligns with the Fed after holding interest rates for the first time in a year
The ECB has just done something it hasn’t done in over a year: nothing. On Thursday, the European Central Bank decided to keep interest rates unchanged after four consecutive cuts, pausing its easing cycle as tensions mount between the European Union and the United States over a trade agreement.
This came during high-stakes negotiations that are still ongoing, with just days left before a potential 15% U.S. tariff hits all EU imports, putting billions in exports on the line.
According to the minutes, the ECB’s key deposit rate currently sits at 2%, down from 3% in January and a 4% high last year. Inflation in the euro area has finally reached the bank’s 2% target, but officials are holding back on more cuts, citing the unstable geopolitical environment.
“The environment remains exceptionally uncertain, especially because of trade disputes,” the bank said Thursday. Officials also said that expectations for price growth haven’t changed much.
Trade negotiations stall as the ECB watches from the sidelines
The U.S., which remains the EU’s largest trading partner, imported 503 billion euros ($590 billion) worth of goods from the bloc last year. But that entire relationship could get disrupted if a deal isn’t reached before the end of the month.
The White House, under President Donald Trump, is reportedly ready to slap a 15% baseline tariff on European imports starting August 1 if talks fail. The EU has already hinted it will respond with its own measures.
This looming threat has forced the ECB to step back. Markets weren’t caught off guard, since most traders expected the bank to hold. But the reason wasn’t just inflation data. It was politics. With global investors already nervous, the central bank doesn’t want to stir up more uncertainty. The strategy now is to wait, observe, and respond later if the situation worsens.
ECB President Christine Lagarde told CNBC in April that the “disinflation process was nearing completion,” signaling that rate cuts may soon be over. Philip Lane, the bank’s chief economist, followed that up earlier this month by saying, “the last cycle is done, bringing inflation down.” However, both stressed that policymakers aren’t switching off. They’re still watching for any changes to the medium-term outlook that could force them to act again.
Market analysts say the real focus now shifts to the ECB’s September meeting, when updated growth and inflation projections will be released. Following the announcement, the euro dipped 0.15% to $1.175 against the dollar. That’s still up from $1.026 at the start of the year, as traders have moved out of the dollar due to U.S. political and fiscal instability. The ECB, for now, didn’t say much about the currency shift. But it’s clear the trend is on their radar.
Looking ahead, the next rate decision could depend entirely on what happens in Washington.
KEY Difference Wire: the secret tool crypto projects use to get guaranteed media coverage
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ECB finally aligns with the Fed after holding interest rates for the first time in a year
The ECB has just done something it hasn’t done in over a year: nothing. On Thursday, the European Central Bank decided to keep interest rates unchanged after four consecutive cuts, pausing its easing cycle as tensions mount between the European Union and the United States over a trade agreement.
This came during high-stakes negotiations that are still ongoing, with just days left before a potential 15% U.S. tariff hits all EU imports, putting billions in exports on the line.
According to the minutes, the ECB’s key deposit rate currently sits at 2%, down from 3% in January and a 4% high last year. Inflation in the euro area has finally reached the bank’s 2% target, but officials are holding back on more cuts, citing the unstable geopolitical environment.
“The environment remains exceptionally uncertain, especially because of trade disputes,” the bank said Thursday. Officials also said that expectations for price growth haven’t changed much.
Trade negotiations stall as the ECB watches from the sidelines
The U.S., which remains the EU’s largest trading partner, imported 503 billion euros ($590 billion) worth of goods from the bloc last year. But that entire relationship could get disrupted if a deal isn’t reached before the end of the month.
The White House, under President Donald Trump, is reportedly ready to slap a 15% baseline tariff on European imports starting August 1 if talks fail. The EU has already hinted it will respond with its own measures.
This looming threat has forced the ECB to step back. Markets weren’t caught off guard, since most traders expected the bank to hold. But the reason wasn’t just inflation data. It was politics. With global investors already nervous, the central bank doesn’t want to stir up more uncertainty. The strategy now is to wait, observe, and respond later if the situation worsens.
ECB President Christine Lagarde told CNBC in April that the “disinflation process was nearing completion,” signaling that rate cuts may soon be over. Philip Lane, the bank’s chief economist, followed that up earlier this month by saying, “the last cycle is done, bringing inflation down.” However, both stressed that policymakers aren’t switching off. They’re still watching for any changes to the medium-term outlook that could force them to act again.
Market analysts say the real focus now shifts to the ECB’s September meeting, when updated growth and inflation projections will be released. Following the announcement, the euro dipped 0.15% to $1.175 against the dollar. That’s still up from $1.026 at the start of the year, as traders have moved out of the dollar due to U.S. political and fiscal instability. The ECB, for now, didn’t say much about the currency shift. But it’s clear the trend is on their radar.
Looking ahead, the next rate decision could depend entirely on what happens in Washington.
KEY Difference Wire: the secret tool crypto projects use to get guaranteed media coverage
Read More