ECB meeting preview: will rates be cut this week?
The European Central Bank faces a crucial decision this week as markets anticipate the first rate cut of 2024, amid persistent economic challenges in the Eurozone.
What to expect from this week's ECB meeting
The European Central Bank (ECB) is widely expected to announce a 25-basis point (bp) rate cut at this week's meeting, though a larger 50 bp reduction remains possible.
Market sentiment suggests this could be the first in a series of cuts throughout 2025, with additional reductions potentially coming in January, June, September, and December. The decision comes as the eurozone grapples with weak economic growth, particularly in major economies like Germany and France, where business sentiment remains subdued.
Current market pricing indicates rates could reach a terminal level of around 1.5%, reflecting expectations of continued monetary easing throughout the year.
Key economic factors influencing the ECB's decision
Inflation in the eurozone remains persistently below the ECB's 2% target, creating room for monetary policy adjustment through forex trading.
Economic growth across the region has shown signs of stagnation, with manufacturing activity particularly weak and service sector growth slowing. Business confidence indicators suggest continued caution among corporate leaders, while consumer spending remains under pressure despite easing inflation.
Recent geopolitical tensions have added another layer of uncertainty, potentially impacting trade flows and investment decisions across the eurozone.
Market implications of the ECB decision
The euro's performance against major currencies will likely see immediate reaction, with forex trading volumes expected to spike during the announcement.
European stock markets, accessible through CFD trading, could rally on confirmation of monetary easing. Bond yields across the eurozone may face downward pressure, particularly if the ECB signals openness to further cuts in the coming months.
Traders using trading platforms should prepare for potential volatility during President Lagarde's press conference.
Focus areas in Lagarde's press conference
Market participants will closely analyse President Christine Lagarde's language regarding future policy direction and the potential timeline for additional rate cuts.
Any hints about the ECB's economic projections could provide crucial insight into the likelihood of further monetary easing in 2025. Comments about inflation expectations and growth forecasts will be particularly important for trading online. Traders should watch for specific guidance about the conditions that could trigger additional rate cuts later in the year.
EUR/USD technical analysis
EUR/USD has enjoyed a brief bounce from the November lows, but the overall downtrend from the highs of September continues. A dovish ECB may well be enough to tip the EUR/USD into a fresh leg lower; even a more substantial rally towards $1.09 might still hit a wall of resistance and create a lower high.
A fresh leg lower targets the $1.04 lows of November, but further losses below this are a firm possibility.
EUR/USD daily chart
How to trade the ECB meeting
1. Research the potential market impact using our comprehensive trading for beginners guides
2. Choose whether you want to trade or invest
3. Open an account with us to access eurozone markets
4. Consider opening a demo account to practice your trading strategy
5. Monitor ECB announcements and place your trades accordingly
Looking ahead to future ECB decisions
Market expectations currently point to multiple rate cuts throughout 2025, with particular focus on the June and September meetings. Economic data releases between meetings will be crucial in shaping expectations for future policy decisions and the ECB's approach to reducing its balance sheet may also come under scrutiny as monetary policy evolves.
Traders should maintain awareness of changing economic conditions that could influence the pace and scale of future rate cuts.
The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.
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