The euro hovered just below the $1.14 mark on Wednesday as investors looked ahead to the European Central Bank’s closely watched policy decision on Thursday.
Euro holds steady ahead of ECB rate cut
Markets have largely priced in a 25 basis point rate cut, which would mark the ECB's first move lower in its current cycle. The anticipation follows a notable cooling in Eurozone inflation, which eased to 1.9% year-on-year in May—below both the 2.0% consensus forecast and, crucially, the ECB’s official 2% target for the first time since September 2024. This softer inflation reading has reinforced expectations of further policy easing in the coming months, as the ECB aims to support the region’s faltering economic recovery.
However, some internal divisions persist. While many Governing Council members appear supportive of a gradual easing path, a minority have issued more hawkish commentary in recent weeks, arguing for a pause to reassess underlying inflation dynamics and wage growth trends. These mixed signals have added an element of uncertainty to the ECB’s forward guidance.
Updates from Germany
Sentiment toward the euro was also buoyed by fiscal news out of Germany, where the government approved a €46 billion tax relief package spanning 2025 to 2029. The stimulus plan aims to bolster private investment, reduce the corporate tax burden, and boost competitiveness in Europe’s largest economy, which has been grappling with stagnating growth and weak industrial output.
On the trade front, optimism grew following comments by EU Trade Commissioner Maroš Šefčovič, who described his recent meeting with US Trade Representative Jamieson Greer as “productive and constructive.” The dialogue comes amid escalating global trade tensions, sparked by President Donald Trump’s move to double tariffs on steel and aluminum imports to 50%. Šefčovič hinted that the EU may secure an exemption from the new tariffs, a development that could help avert a wider transatlantic trade conflict and support investor confidence in the region.
