- ECB expected to cut rates by 25bps amidst economic uncertainty.
- Focus on trade tensions and slowing inflation influencing ECB policy.
- Markets watching for clues on future rate cuts as forward guidance may not be forthcoming.
- EUR/USD hovers in overbought territory ahead of ECB meeting. More upside ahead or time for a retracement?
The European Central Bank’s (ECB) April meeting is scheduled later today with markets all but expecting a 25bps rate cut. This will be a sixth consecutive 25bps rate cut and comes against a backdrop of significant economic challenges, ranging from trade-induced uncertainty to slowing inflation.
Let us explore the likely outcomes of the meeting, the expected rate changes, and their broader implications for the Eurozone economy and global markets.
Why the April Meeting Matters
Today’s ECB meeting is crucial as the bank addresses an uncertain economy with uneven growth. Key issues include:
US Policy: New US tariffs on European exports have created mixed inflation effects in the Eurozone. Europe has paused retaliatory measures during trade talks, but the uncertainty is slowing investment and trade.
Inflation Trends: Core inflation is slowing, with Eurozone inflation at 2.2% in March, down from 2.3%. ECB officials are worried about falling prices, especially as energy and services inflation drops.
Source: Eurostat, MNI
Euro Strength: The Euro has recently hit multi-year highs against the US Dollar, adding pressure by reducing the competitiveness of European exports.
What to Expect from the ECB’s Decision
Analysts widely expect the ECB to cut the deposit rate by 0.25% to 2.25%. This would put rates at the top of the ECB’s expected neutral range (1.75–2.25%). Rising trade risks, stricter financial conditions, and slowing inflation make a rate cut more likely. However, markets are cautious, pricing in about 0.43% in cuts by June, showing uncertainty about how fast rates will be reduced.
At the March meeting, ECB President Christine Lagarde said monetary policy was getting less strict, showing a slow move away from tightening. Analysts think this view might shift further in April, with officials likely to say rates are close to neutral. However, the ECB is not expected to give clear future guidance or set a fixed rate plan, preferring to make decisions step by step based on data.
Such a move would be similar to what was seen by the Bank of Canada (BoC) yesterday. The BoC opted against forward guidance and projections citing the uncertainty of the current global economic climate.
For more information on the Bank of Canada decision, read Bank of Canada rate hold: USD/CAD slides, what’s next?
Looking beyond the April meeting
The focus is once again on the ECB’s plans for the coming months. Markets expect the ECB to lower the deposit rate to 1.75% in the fourth quarter, with a small chance of even bigger cuts to make policy more supportive.
The ECB’s Governing Council faces important decisions in the months ahead.
Key points to consider:
Rate Cuts: Analysts are split on whether more cuts will stop at neutral or go lower to boost growth. The June meeting is key, with some predicting rates could drop to 1.5% by September.
Quantitative Tightening (QT): Policymakers plan to slowly reduce bond holdings, but worsening trade disputes or financial instability might change these plans.
Uncertainty Management: The ECB’s guidance will depend on how trade tensions, geopolitics, and inflation unfold.
President Lagarde’s press conference will be closely watched for clues on balancing inflation, growth, and market risks.
Final Thoughts
The ECB might adjust its language to show its moving toward neutral policy but is unlikely to take a stronger stance due to ongoing uncertainty. The impact of tariffs on growth is clear, but their effect on inflation remains uncertain. A survey shows 26% of economists expect higher inflation soon. Future ECB actions will depend more on developments in the trade dispute than on Thursday’s announcements.
Technical Analysis – EUR/USD
From a technical standpoint, the Euro has been the biggest beneficiary from the US-China trade war and tariff proposals by the US administration.
The US Dollar is under pressure as its safe haven appeal has largely dissipated in 2025.
There seems to be a noticeable pivot toward the EU assets at present and the Euro as well.
Given that markets have largely priced in a 25 bps cut, the decision today might have little impact on EUR/USD.
However, EUR/USD does remain in overbought territory and thus aretracement cannot be ruled as the pair tests significant resistance at the 1.1400 handle.
A break higher could lead to a retest of 1.1482 with the next key area of interest resting at the 1.1600 handle.
If we are to see a pullback in EUR/USD, immediate support rests at 1.1274 and 1.1200 respectively.
EUR/USD Daily Chart, April 17, 2025
Source: TradingView (click to enlarge)
 April meeting is scheduled later today with markets all but expecting a 25bps rate cut. This will be a sixth consecutive 25bps rate cut and comes against a backdrop of significant economic challenges, ranging from trade-induced uncertainty to slowing inflation.){kind=link}