European Central Bank reducing rates with Trump’s threat in focus

The European Central Bank is expected to start its 2025 meetings with another reduction of interest rates on Thursday, since merchants aim to evaluate to what extent the Central Bank is willing to diverge a stagnant federal reserve.

The monetary markets on Wednesday were prices at 35 basic points of rates cuts for the January meeting, indicating that the Central Bank of the Euro Zone will reduce at least one point of room percentage. That would carry the deposit installation, its key rate, to 2.75% marking its fifth place since it began facilitating monetary policy in June 2024.

The market price suggests monitoring cuts at the March and June meetings of the ECB, with a fourth and last reduction that carries the 2% tank installation by the end of the year.

The expectations for a quick rhythm of relaxing this year have solidified, even after a holder Inflation of the euro zone increased for the third consecutive month in December. A slight increase in the price increase rate was expected due to the effects of the energy market, while the commercial activities indicators for the block show continue MANUFACTURE FLOAD and warm consumer trust. Economists surveyed by Reuters expect the growth figures for the fourth quarter to show that the GDP expands only 0.1%, below 0.4% in the third quarter.

While this week’s ECB rate movement is almost guaranteed, there are several key questions that its president, Christine Lagarde, will probably be interrogated during his press conference after the announcement, and many of them are related to the United States and Your new leader.

A concern is whether the ECB feels comfortable with the growing distance between its own monetary policy path and that of the world’s largest central bank, the Federal Reserve, which is established in Hold rates on Wednesday. The markets are prices in just two cut -off feats of the Fed Point projected by members of the Fed In December.

Some strategists suggest the Fed I could promulgate only one cutAnd at least the water of the rolling band, since he expects more details about the real policies of President Donald Trump in front of his Extreme commercial threats and his Potential inflationary impact.

Lagarde acknowledged that divergence in an interview at the World Economic Forum last week, Tell CNBC which was the result of different economic environments. While the euro area has fallen into stagnation, the economy of the United States has continued to grow to a solid clip In the highest interest rate environment, and many investors are Optimistic in perspectives 2025 Despite Trump’s uncertainty.

“We have to look at a differentiation here through the growth lens and the replacement capacity that is accumulating in the US. We have an economy that is working hard and quickly … we cannot say the same when We look at the Euro Zone, “Sandra Horsfield, an economist at Investte, said Wednesday” Europe Squawk Box “of CNBC.

“That divergence means that it is more likely that inflationary pressures are maintained for some time in the United States,” he said, which led to forecast a more fed cut followed by a pause and a greater scope for cuts in Europe.

This reinforces the expectations that the euro could be withdrawn to parity With the green back and suggests even more strength for a YA-MANDO OF THE US DOLLAR In 2025. That is important for the ECB, because a weaker currency increases the cost of importing goods, even if the greatest concerns of the Central Bank are currently related to the services generated by the country and salary inflation.

Lagarde minimized the impact of this effect, telling CNBC that the exchange rate “will be of interest and … can have consequences.”

However, he also said that he was not worried about the importation of the United States inflation to Europe and continues to wait for price increases to cool with the target. The president of the ECB added that the optimism around the economy of the United States was positive “because growth in the United States has always been a favorable factor for the rest of the world.”

The president of the United States has not reapproved his idea of ​​sweeping and universal tariffs in imports to the US Duties aimed at China, Mexico and Canada. However, in a speech in the World Economic Forum, accused the European Union to treat the United States “very unfair” in commerce, promising: “We are going to do something about it.”

Commercial wars could interrupt the global supply chains and Stoke inflation, which guarantees higher interest rates in the ECB, said George Lagarias, chief economist of Forvis Mazars.

“The risks of inflation and rates are definitely upwards” for the euro zone, he told CNBC by email.

“The EU company sells prices expectations has been flattened and shows an upwards A significant divergence of the ECB could risk the capital flight to the dollar, “he added.

On the possibility that the ECB can promulgate a greater cut of half -point rates, he said: “If we see an acute rate cut, it would mean that the Board seeks to protect the growth in the core of the euro zone and make sure that uncertainty Politics in France and Germany or a fiscal policy releases in Italy does not cause a precipitous increase in indebtedness rates. “

Bas van Geffen, a senior macro strategist of Raboresearch, also said it was “less optimistic when it comes to the inflation perspective than the ECB, or markets seem to be”, predicting a fall in rates at 2.25% this year.

“When the ECB incorporates Trump tariffs in its reference stage, we would also expect more inflation forecasts on its part,” he told CNBC.