Euro Under Pressure as ECB Hints at Another Rate Cut Amid Weak Economic Data
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The euro faced downward pressure this week as European Central Bank (ECB) officials hinted at the possibility of another interest rate cut, citing ongoing economic weakness across the Eurozone. The currency slipped below $1.08 against the U.S. dollar, hitting a three-week low as investors adjusted their expectations for future monetary policy.
The move follows a series of lackluster economic reports from major Eurozone economies including Germany, France, and Italy. Germany’s industrial production shrank by 1.6%, while consumer confidence across the bloc has remained persistently low. Combined with a steady decline in inflation, now hovering near 2.2%, policymakers are under increasing pressure to stimulate the economy.
Speaking at a recent ECB forum, Governing Council member Pierre Wunsch stated, “While we welcome the progress in bringing inflation under control, growth remains fragile. Additional support may be necessary if momentum does not improve in the second half of the year.” This subtle but significant signal suggests that the ECB could deliver another 25-basis-point cut as early as September, following its June rate reduction.
Currency traders were quick to react. The EUR/USD pair dropped 0.4% intraday, while EUR/JPY and EUR/GBP also weakened slightly. The euro’s performance has been uneven in recent months as market participants try to weigh falling inflation against the risk of a deeper recession.
“The ECB has to walk a tightrope between taming inflation and avoiding an economic downturn,” said Fiona Cincotta, senior market analyst at City Index. “While inflation has improved, the economic slowdown in Germany and across southern Europe is a red flag.”
Market sentiment has shifted significantly since the start of the year. Investors who once expected a hawkish ECB are now increasingly betting on multiple rate cuts through the end of 2025, with some forecasting as many as three. This dovish shift contrasts sharply with the U.S. Federal Reserve, which has kept rates higher for longer, bolstering the dollar and putting the euro under additional pressure.
On a technical level, analysts warn that if EUR/USD breaks below 1.0750, it could open the door for further declines toward 1.06, especially if next week’s Eurozone PMI data disappoints. Support for the euro may only return if there’s a surprising uptick in industrial output or consumer demand.
In the broader picture, the euro’s weakness also reflects diverging global growth patterns. As the U.S. economy continues to outperform, and China pushes new stimulus measures, the Eurozone’s stagnation stands out unfavorably.
In conclusion, while a softer ECB may help revive growth, it’s a double-edged sword for the euro. Traders should brace for increased volatility as more economic data and ECB commentary unfold in the coming weeks.
