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Trade Risks Add Pressure to Growth Outlook
Rising trade tensions with the U.S. represent a second major risk. Although a proposed 20% tariff on EU imports has been paused for 90 days, a 10% blanket tariff on non-Chinese imports remains in effect, covering approximately €380 billion in European goods. The uncertainty has already weighed on sentiment—Germany’s ZEW index has dropped to a two-year low, and eurozone-wide sentiment is back at late-2022 levels.
If Lagarde frames trade risks as a key concern that justifies further easing, markets could interpret this as support for a more aggressive rate path. Alternatively, if the ECB downplays the impact or points to ongoing negotiations, the euro could prove more resilient.
Market Prepares for Possible Acceleration in Easing
Expectations have shifted toward a faster pace of cuts. Traders now price in nearly two rate cuts over the ECB’s next two meetings and as many as four by year-end. Euribor futures are discounting 86 basis points of easing by early 2026. Pictet’s Frederik Ducrozet argues the ECB may “have to cut at every meeting,” citing ongoing uncertainty. ABN Amro forecasts the deposit rate could fall to 1.5% by September.
The degree to which the ECB aligns with these expectations will be key for EUR/USD. Any sign of divergence from the Fed’s pace—whether faster or more cautious—will influence rate differentials and shape the euro’s appeal.
Market Forecast: Forward Guidance to Drive EUR/USD Response
With the cut priced in, traders will focus on Lagarde’s tone. A dovish message that highlights trade and growth risks may increase expectations of further easing. A balanced or cautious message could help stabilize the euro. The ECB’s communication, not the rate move itself, will likely dictate the next leg for EUR/USD.
More Information in our Economic Calendar.
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