EURUSD falls to around 1.0450 following the ECB’s dovish monetary policy decision and a stronger US dollar.
EURUSD broadly consolidating near 1.0470 in Friday’s European session, remaining under bearish pressure following comments from European Central Bank (ECB) President Christine Lagarde on Thursday indicating that more interest rate cuts are on the way, which has dampened the Euro’s (EUR) outlook.
The ECB dropped its key borrowing rates by 25 basis points on Thursday, although some officials even considered a 50-bps cut.
After the ECB decided to lower its Deposit Facility rate by 25 Christine Lagarde underlined the Eurozone’s weakening growth forecast due to a slowdown in exports and sluggish corporate investment, indicating the need for further policy easing. “Surveys indicate that manufacturing is still contracting and growth in services is slowing,” she stated. Further, “firms are holding back their investment spending in the face of weak demand and a highly uncertain outlook.” .
Lagarde’s comments also suggested that a few ECB officials backed a larger-than-usual interest rate decrease of 50 basis points, implying that policymakers are concerned about slowing economic growth. The updated ECB staff predictions predict that the Eurozone economy would grow by 0.7% in 2024 and 1.1% in 2025, which is less than previously predicted.
Christine Lagarde felt confident about inflation pp returns to 2% on a consistent basis. “Our projections are telling us that we will be at 2% target in the course of 2025.” When asked about the impact of higher import tariffs imposed by the United States (US), Lagarde stated that they are “probably net inflationary” in the short term, but that “it is going to depend on the scope of the measures and retaliation that is decided, on the rerouting of trade traffic from other parts of the world.”
Given that the blackout period has ended, markets will now watch for ECB policymakers’ comments on interest rate guidance.
