Global trade uncertainties are fuelling up across regions. Europe is no far off and is facing the heat as the European Central Bank (ECB) is expected to announce its next interest rate cut in September. The policymakers are worried about the global trade war, hence, closely monitoring the uncertainties and the recent appreciation of the euro.
This delay in monetary easing comes after the rate cut by the European Central Bank in June, with officials now adopting a more cautious “data-dependent” method.
According to the Office of the United States Trade Representative, U.S total goods trade with the European Union were an estimated $975.9 billion in 2024. U.S. goods exports to the European Union in 2024 were $370.2 billion, and imports were $605.8 billion. Furthermore, the trade deficit with the European Union was $235.6 billion in 2024, a 12.9 percent increase ($26.9 billion) over 2023.
European Central Bank Officials Are Cautious
There has been a continuous shift due to ongoing trade negotiations. Basically, new tariffs and the possibility to their escalations are casting a shadow over the Eurozone’s economic outlook. ECB officials are concerned that this uncertainty could reduce business investment and exports, therefore will affect EU’s economic growth. While the central bank acknowledges that increased government spending on defence and infrastructure may provide some support, the immediate impact of trade remains a key focus area.
Appreciation of Euro will affect Export and Import
ECB is also looking for irregularities and waiting to check the strengthening of the euro against other major currencies. A stronger euro can make Eurozone exports more expensive and imports cheaper. Therefore, may affect inflation. With inflation largely in line with the ECB’s target, a further appreciation of the currency could lead to an undershoot, complicating the central bank’s price stability mandate.
ECB monetary policy meeting in September
While some market participants had hoped for an earlier rate cut in July. The convergence of trade uncertainties and the euro’s appreciation appears to have set the Governing Council’s inclination to wait and watch. The next ECB monetary policy meeting in September will therefore be closely watched for definitive signals on the path of interest rates.
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