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The European Central Bank may cut interest rates early, putting pressure on the euro to hit a nearly two month low
forex5 months before
Summary：With the weak economic recovery and slowing inflation in Europe, there are increasing voices within the European Central Bank supporting an early interest rate cut in June. Market expectations have quickly adjusted, and the euro fell below the 1.075 level against the US dollar, hitting a new low in nearly two months. Investors are concerned about the impact of future policy rhythms on monetary assets in the eurozone, and the volatility of the foreign exchange market may continue to rise.
In May 2025, the euro against the US dollar continued to weaken, falling below 1.075 at one point, hitting a new low since the end of March. The trigger for market sentiment fluctuations was hinted by multiple officials within the European Central BankThe interest rate cut cycle will start as early as JuneTo cope with economic weakness and a significant drop in inflation.
The latest core inflation rate for April in the Eurozone has dropped to 2.6%, lower than market expectations and far from the European Central Bank's medium-term target of 2%, but enough to drive a policy shift. The manufacturing PMI of Germany and France is still in a shrinking range, indicating a lack of momentum in economic growth. The market has started betting that the European Central Bank will cut interest rates twice in a row, each by 25 basis points.
Affected by this, not only the euro was under pressure, but also the yield of European bonds fell simultaneously, and the yield of German 10-year treasury bond fell to 2.27%. Morgan Stanley analysis points out that if the European Central Bank takes action before the Federal Reserve, it will exacerbate the divergence of monetary policies between Europe and the United States, further suppressing the euro.
Foreign exchange traders are currently focusing on the minutes of the European Central Bank meeting in early June and the next round of CPI data. If the evidence supporting early easing further strengthens, the euro may further test the technical support level of 1.07 or even 1.065. The market suggests controlling leverage during this period and cautiously chasing short positions.
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