Why I Expect the ECB to Cut Rates – And What It Means for the Euro

Right now, markets are pricing in a 91% chance the European Central Bank (ECB) will cut interest rates by 25 basis points. This is based on data from the PMT Pro Market Terminal, and the decision is expected Thursday night (Australia time).

So, will they cut? In my view, yes — there’s little room for a pause.

Inflation is easing. Headline inflation in the eurozone is down to 2.2%, and services inflation is also slowing. Energy and commodity prices are softening, and that’s helping ease broader inflationary pressures. On top of that, business confidence — as reflected in the ZEW index — has just recorded its third-worst drop ever.

All signs point to a cut.

Some may argue that potential U.S. tariffs could reignite inflation, but European leaders have been proactive in avoiding escalation. The ECB has an opportunity here to continue easing, and I believe they’ll take it.

We’re also expecting new CPI data tonight at 7 p.m. Sydney Time, including core CPI. Most forecasts suggest a continued decline, reinforcing the case for lower rates. The ECB’s approach, in my view, is like a trailing stop — they’re moving forward cautiously but steadily, with no need to slam the brakes.

A rate cut could actually be bullish for the euro. Lower rates, combined with falling inflation, could increase household spending and investment — and that supports economic growth. I believe EUR/USD could push toward 1.14 in the coming weeks.

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