Euro dips but holds strength amid ECB signals of rate cut end

The euro slipped slightly to $1.142 on Friday but remained within reach of Thursday’s six-week high of $1.149, as markets continued to digest the European Central Bank’s widely expected rate cut and accompanying forward guidance.

Euro dips but holds strength amid ECB signals of rate cut end

The ECB reduced interest rates by 25 basis points—the first cut in its current easing cycle—and signaled that further reductions may be limited, reinforcing the notion that monetary policy is now nearing a pivot point. President Christine Lagarde indicated that the central bank is approaching the end of its rate-cutting path, citing progress toward the inflation target and improving economic conditions. Echoing that sentiment, ECB Governing Council member Yannis Stournaras told Bloomberg that the eurozone has likely achieved a “soft landing,” and that most of the required monetary easing has already been delivered. However, he cautioned that risks remain, especially in light of rising global trade tensions and the uncertain impact of recently introduced tariffs. The ECB also downgraded its inflation projections, reflecting both a stronger euro and softer energy prices. Headline inflation is now forecast to average 2.0% in 2025 and 1.6% in 2026—both figures revised down by 0.3 percentage points from the March forecast. Core inflation is expected to follow a more gradual path, but remains consistent with a return to price stability over the medium term. These adjustments contributed to market expectations that any additional rate cuts will be gradual and dependent on incoming data.

Weak dollar supports euro

At the same time, the euro found underlying support from a weakening US dollar, which has come under pressure amid renewed investor concerns about the American economic outlook. President Trump’s aggressive tariff stance—particularly the recent move to double steel and aluminum import duties to 50%—and proposed fiscal spending cuts have raised questions about future growth and investor confidence in US assets. As a result, currency traders have begun to reprice risks around the dollar, favoring the euro and other major currencies in the short term. Looking ahead, currency markets will be closely monitoring US labor market data and any additional signals from central banks on both sides of the Atlantic, with the euro’s near-term direction likely to hinge on the evolving divergence between ECB policy normalization and uncertainty surrounding US fiscal and trade policy.