ECB is about to cut interest rates again, and calls for a pause in easing in the summer are growing

The European Central Bank is expected to cut interest rates again on Thursday (June 5), which has long been expected by the market. However, with the complex changes in the eurozone economy and inflation situation, the discussion on whether to pause the easing cycle in the summer has become more intense. The ECB has cut interest rates seven times in the past 13 months in an attempt to stimulate the economy, but the difference between the short-term and medium-term economic prospects has put policymakers in a dilemma.

The ECB's interest rate cut is based on the decline of inflation from its high to the target level of 2% and weak economic growth. This Thursday, the deposit rate is expected to be lowered to the "neutral rate" of 2.0%. The market generally expects that ECB President Anna Lagarde will hint at the possibility of pausing easing in July at the press conference after the meeting to observe the further evolution of economic data. Some hawkish officials advocate pausing easing and reassessing the impact of uncertainty on the eurozone economy.

The eurozone economy is currently in a contradictory stage. In the short term, economic growth is weak, energy costs are falling, and the euro is stronger, which will curb inflationary pressures; in the medium term, factors such as trade barriers, green transformation costs and tight labor markets may push up prices. The hysteresis effect of monetary policy also poses challenges to the ECB, and the current interest rate cuts may only take effect when the economic environment changes in the future.

The ECB's decision to cut interest rates on Thursday was in line with market expectations, but subsequent policy signals will have a profound impact on the euro's trend. If Lagarde hints at a pause in easing in July, the euro may receive short-term support due to expected policy tightening. In the medium term, trade barriers, labor market tightening and green transition costs may push up inflation expectations and put downward pressure on the euro. Global economic uncertainty, especially tariff issues related to the United States, may further weaken the eurozone's economic outlook and indirectly affect the euro exchange rate.

In short, the ECB's choice between cutting interest rates and suspending easing reflects its delicate balance between short-term economic support and medium-term inflation risks. Lagarde's statement will be the key to the market's interpretation of policy direction, and the eurozone's economic prospects and the euro's trend will continue to be tested in this complex environment.