Today, the European Central Bank (ECB) will likely announce its largest-ever cut in interest rates.
Political realities
Many economic pressures are converging, increasing the urgency for this dramatic step. The bank now faces a difficult challenge of navigating between falling inflation and decelerating economic growth. To make matters worse, US tariffs increase the squeeze. US President Donald Trump recently declared a 90% halt on imposing tariffs on the European Union. Markets remain on guard against actual changes when this grace period expires.
Meanwhile, the ECB is preparing for its next policy meeting. Analysts are anticipating the bank to address these economic concerns by cutting interest rates. The continued speculation over US trade policy including tariffs has added a wild card to the Eurozone economic outlook. President Trump has demonstrated a volatile approach to tariff announcements, further heightening market fears.
EURUSD currency pair on Tuesday fell to an intraday low of 1.1264. This decrease underscored the market’s increasing fear in the lead up to the ECB’s announcement. At the time, the relative strength index (RSI) had signaled weakness. It was unable to break above the 75.00 resistance zone, demonstrating the Euro’s weakness in terms of bullish momentum against the US dollar.
In the commodities complex, gold continued to exhibit safe-haven characteristics, hovering around $3,200 per troy ounce as of Tuesday. Gold prices bounced back sharply after earlier declines. Investors quickly poured into safe-haven assets as trade war tensions heat up and the economic outlook fades. At the same time, altcoins began to recover, indicating that the cryptocurrency market may be stabilizing following a period of extreme volatility and uncertainty.
The backdrop of a still-ongoing trade war with China doesn’t exactly help matters, either. The ECB’s anticipated rate cuts might well be justified as emergency moves to boost flagging growth and prop up low inflation. But whether these cuts will be effective is yet to be seen, especially since international trade policy is as hard to predict as it is to control.