ECB to lead interest rate cut

The European Central Bank (ECB) is expected to make its first rate cut after completing its tightening cycle at its meeting on Thursday this week. While the Fed has signaled that it will keep interest rates high until it receives more evidence that inflation in the US is moving towards its target, it is anticipated that the ECB’s rate cut could have a downward impact on the euro. With the ECB cutting interest rates by 25 basis points each, the gap between Eurozone and US interest rates will also widen. ECB officials, led by President Christine Lagarde, have emphasized that they are comfortable with decoupling from the Fed, even if there is a risk of a weaker currency that could trigger inflation. Whether or not the easing steps will continue after the almost certain June cut, and at what pace, will depend on data. Data released on Friday showed that consumer prices in the Eurozone exceeded expectations by 2.6 percent on an annual basis in May. Italy’s central bank governor Fabio Panetta acknowledged on Friday that lower borrowing costs posed a currency risk to prices, while he said tight U.S. policy could also hurt global demand and thus curb euro zone inflation. “Our data and decisions are naturally influenced to some extent by the Fed,” his Austrian counterpart Robert Holzmann said. Bloomberg Economics forecasts a 25 basis point cut in June and further cuts of the same magnitude in September, October and December, after leaving rates unchanged in July.