The European Central Bank is expected to start on Thursday with its meetings 2025. With another decrease in interest rates on Thursday, as traders aim to estimate how much the central bank is ready to deviate from the stopped federal reserves.
Finance markets on Wednesday were prices in 35 base points of reducing the January meeting rate, indicating that the central bank of the Euro Zone would reduce by at least a quarter percent. This should be a deposit plant, its key rate, at 2.75%, marking the heel of the heel since he began to alleviate monetary policy in June 2024.
Market prices then suggest further reduction at ECB meetings and June, and the fourth and final decrease led to 2% deposit by the end of the year.
Expectations for a quick pace of mitigating this year have been fixed, even after the title The inflation of the European area The third month in December increased. A little increase in the price increase is expected due to the effects of the energy market, while the indicators of business activities for the block continue weakness in production and thin Consumer trust. The economists surveyed by Reuters expect growth figures in the fourth quarter to show that GDP will expand only 0.1%, which is a drop of 0.4% in the third quarter.
Although the ECB stop this week’s move is guaranteed, there are some key questions that its president, Christine Lagardo, will probably be questioned during her press conference after the announcement, many relate to the US and her new leader.
One of the concerns is whether the ECB is comfortable with an increase in the distance between your own monetary policy path and the world’s largest central bank, the federal reserves, which needed Wednesday retention rates. Markets are prices in just two decreasing rates of Fed rates this year, as Designed by Fed members in December.
Some strategists suggest Fed could only bring one cutand in the least treads water while waiting for more details about President Donald Trump’s actual policies opposite his Extreme trade threats And theirs Potential inflationary influence.
Lasrarde acknowledged this divergence in an interview at the World Economic Forum last week, speaking CNBC that it was the result of different economic environments. While the euro area has fallen into stagnation, the American economy has continued to grow in a solid clip in an environment with a higher interest rate, and many investors are Optimistic on the appearance of 2025 Despite Trump’s uncertainty.
“We need to look at differentiation here through the growth lens and the spare capacity built in the US, we have an economy that works strongly and quickly … We cannot say the same when we look at the Euro zones,” Sandra Horsfield, an economist in Investec, said she said in Wednesday for CNBC “Squawk Box Europe”.
“This divergence means that inflationary pressures will be more likely to be held in the US for a while,” she said, which led her to the forecast of another cut of FED, followed by a break and a higher extent to reduce in Europe.
Withdrawal of currency
ECB has repeatedly emphasized that he is ready to go in front of the Fed and focus on his domestic image of inflation and growth. However, the main impact of the difference in politics is in foreign exchange, with a higher rate tend to increase the domestic currency.
This enhances expectations that the euro might be he retreated to parity with Greenback and suggests even more power for But the Bridge American dollar 2025. This is important for the ECB, because the weaker currency increases the costs of importing goods, even if the higher concern of the central bank refers to the services generated in the country and the pay inflation.
Lajarde reduced the impact of this effect, saying CNBC that the course “will be of interest and … can have consequences.”
However, she also said she was not worried about importing the USA in Europe and continues to expect the price to cool down to the goal. ECB President added that the forestry around the American economy was positive “because growth in the US has always been a favorable factor for the rest of the world.”
A trade issue
Although the weaker euro could be a factor that encourages the ECB to reduce rates with a little cautious, there is also the possibility of Trump to launch a global or even European war, which further slows down the growth of the EURA zone and creates the need for even more cuts.
The US President did not re -explain his idea of cleaning, universal tariffs on imports to the United States, and is currently zero Duties targeted on China, Mexico and Canada. However, in a speech at the World Economic Forum, he Accused the European Union To be treated in the US very unjustly at the store, promising, “We will do something about it.”
The trade wars could disrupt the global supply and inflation chains, guaranteeing larger interest rates on the ECB, said George Lasarias, the main economist forvis Mazars.
“Risks for inflation and rates are definitely upside down” for the euro zone, he told the CNBC E -aftermath.
“EU’s expectations of EU sales prices are flattened and tested upwards. This is a leading indicator of ECB’s own screenings … and the Fed is likely to be on several Falcon’s paths, so that significant deviations from ECB could risk the capital of capital capital According to the dollar, “he added.
About the possibility that ECB could bring a larger reduction of a half -point footage, he said: “If we see a sharp reduction of the rate, it would mean that the Committee seeks to protect growth in the eurozone nucleus and take care of that political uncertainty in France and Germany or loose fiscal policy in Italy does not cause a precipitating increase in borrowing rates. “
Bass van geffen, an older macro strategist in Rabressearch, also said that “he is less optimistic when it comes to the chance of inflation than ECB, or seems to be markets,” predicting the downfall of the rate at 2.25% this year .
“When the ECB includes Trump’s tariffs in their basic scenario, we would also expect greater forecasts for inflation on their part,” he told CNBC.
