The European Central Bank has signalled it is nearing the end of its rate-cutting cycle as it lowered borrowing costs by a quarter point to 2 per cent.
The euro climbed to trade 0.5 per cent higher against the dollar at $1.147 after remarks by ECB President Christine Lagarde that the central bank’s easing cycle had “nearly concluded”.
Traders reined in their bets on future rate cuts, with swaps markets pricing in just one more reduction in the second half of the year. Previously, markets had implied a small chance of two further cuts.
Thursday’s widely expected decision means the ECB has now halved its benchmark rate from a peak of 4 per cent over the past 12 months.
Most analysts predict that the unexpected strength of the euro since Donald Trump’s “liberation day” tariff announcements in April, combined with lower energy prices and a potential rise in imports from China, will keep a lid on consumer price rises in the Eurozone.
But economists and policymakers remain unsure over whether a trade war will ultimately dampen or speed up inflation.
The ECB lowered its inflation outlook for this year to its medium-term 2 per cent target, down from the 2.3 per cent it predicted in March.
