European Central Bank set for another interest-rate cut amid questions of how many more will come

• The European Central Bank is set to deliver another 25 bps cut to key rates on Thursday.

• The ECB’s updated staff projections and President Christine Lagarde’s presser will be closely scrutinized.

• The EUR/USD pair could move sharply depending on the ECB policy announcements.

The European Central Bank (ECB) is widely expected to reduce key interest rates for the seventh time in a row. The decision will be announced on Thursday at 12:15 GMT.

The interest rate decision will be accompanied by the quarterly staff projections about inflation and growth, while ECB President Christine Lagarde’s press conference will follow at 12:45 GMT.

The Euro (EUR) could experience intense volatility on the ECB announcements against the US Dollar (USD).

What to expect from the European Central Bank interest rate decision?

The ECB is expected to lower the benchmark rate on the deposit facility by another 25 basis points (bps) to 2% from 2.25%, following the conclusion of the June monetary policy meeting.

The main reason behind the rate cut is the decline in inflation towards the ECB’s 2% target. Data released by Eurostat showed that the Harmonized Index of Consumer Prices (HICP) in the Eurozone rose 1.9% year-over-year (YoY) in May, after increasing by 2.2% in April. Additionally, the annual core HICP inflation dipped to 2.3% from 2.7% in the same period.

Still, a bunch of ECB policymakers considered hawks have been vocal last month about their preference for a rate cut pause, given the heightened uncertainty on the economic outlook amid the US-EU trade war.

ECB policymaker Robert Holzmann said that “the ECB should pause further interest rate cuts until at least September.” Board member Isabel Schnabel warned of “new shocks posing new challenges” even as disinflation remains on track. Meanwhile, ECB Governing Council member and Bundesbank President Joachim Nagel argued: “Given the continuing high level of uncertainty, we should therefore remain cautious in monetary policy."

On the trade front, US President Donald Trump threatened on May 23 to impose 50% tariffs on European Union (EU) goods, complaining that the 27-member bloc had been "very difficult to deal with" on trade and that negotiations were "going nowhere." Those tariffs would have kicked in starting June 1.

A couple of days later, Trump said that the United States (US) will delay the implementation of a 50% tariff on EU imports from June 1 until July 9 to buy time for negotiations.

Last Friday, US President announced the doubling down of tariffs on steel and aluminium imports to 50% from 25%. The measure, which would hit Europe hard, is supposed to take effect from June 4.

Amidst lingering uncertainty over the impact of Trump’s trade policies on the old continent’s economic activity and the continued progress in disinflation, the ECB policy statement, quarterly inflation and growth forecasts and President Christine Lagarde’s speech will be closely scrutinized for fresh hints on the central bank’s next interest rate move.

Previewing the ECB’s April meeting, TD Securities analysts said: “We expect a 25 bps cut, with markets and consensus converging on the same. Projections are likely to be lowered for growth and inflation due to global trade policy developments since March.”

“However, citing resilience in the economy and convergence on the inflation target, this cut is likely to be paired with a hawkish tilt in language, suggesting a pause in July,” analysts noted.

How could the ECB meeting impact EUR/USD?

EUR/USD has maintained its bullish momentum so far this year, courtesy of the US Dollar’s underperformance (USD) on growing fears over an economic downturn, likely driven by Trump’s tariff war.

Heading into the ECB showdown, the main currency pair is losing traction due to the renewed buying interest seen around the USD.

Odds of more rate cuts in the future would ramp up in case President Lagarde or the quarterly forecasts suggest that disinflation remains on track despite the tariff-related uncertainty. In this scenario, EUR/USD could extend its correction from six-week highs. If Lagarde voices concerns about the economic outlook, it could reaffirm this dovish view.

Conversely, the Euro could resume its uptrend against the USD if the ECB indicates potential upside risks to inflation and Lagarde suggests prudence ahead in order to assess the tariff impact, fanning expectations of a pause in its easing cycle.

Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD:

“EUR/USD holds well above all major daily Simple Moving Averages (SMA) while the Relative Strength Index (RSI) indicator stays firm near 56, suggesting that upside risks remain intact for the pair.”

“On the upside, the immediate resistance aligns at the six-week high of 1.1456, above which the 1.1500 round level will be tested. The April 21 high of 1.1574 will be next on buyers’ radars. Alternatively, healthy supports could be spotted at the 21-day SMA of 1.1285, followed by the 50-day SMA at 1.1220 and the 1.1150 psychological barrier,” Dhwani added.