ECB Navigates Trade Uncertainty with Dovish Policy Statement

So, as expected, the ECB cut its interest rate by 25 basis points to 2.25%. And they added some pretty dovish language to their monetary policy statement, saying, for example, that services inflation had eased and that recent trade tensions were causing a tightening and financial conditions. So we're sticking with our call that the ECB is going to cut interest rates yet again at its June meeting by a further 25 basis points to take them to 2%, which would be firmly within neutral territory. 

But we're a lot less convicted on interest rates thereafter. And the reason for that is because their next meeting in June is going to take place prior to the end of this 90 day reprieve on reciprocal tariffs with the U.S., and therefore the potential that the EU could retaliate with higher tariffs of their own. And so really muddy the outlook for inflation.

So for now, we think that a June rate cut of 25 basis points is pretty much in the bag. But thereafter we could well see the ECB on hold for much of, if not the remainder of 2025.