The European Central Bank (ECB) took a decisive step yesterday, cutting its key interest rates by 25 basis points. This move brings the deposit rate down to 2.75% and the refinancing rate to 2.90%. Despite reiterating a data-dependent approach, the ECB’s statement and press conference hinted at a continued easing bias, suggesting further rate cuts could be on the horizon.
Muted Market Reaction, But More Cuts Expected
Despite the ECB’s decision, market reactions remained subdued. Futures contracts indicate that traders expect another rate cut in March, with the deposit rate potentially reaching 2% by year-end. Investors and businesses should prepare for the potential ripple effects of prolonged lower interest rates.
Currency Markets React as Dollar Strengthens
Major currency pairs remained within tight trading ranges throughout the European session. However, the US dollar saw overnight gains following comments from former President Trump, who renewed his threats of tariffs on Canada and Mexico. This geopolitical development added a layer of uncertainty to an already cautious market.
What’s Next? Key Data to Watch
Looking ahead, key economic data releases will provide further insight into the direction of global markets:
- US Core PCE Inflation (December) – The Federal Reserve’s preferred inflation gauge is expected to hold steady at 2.8%, a crucial factor in shaping Fed policy decisions.
- German HICP Inflation (January) – The Eurozone’s largest economy will release its flash estimate, providing clues about broader inflation trends within the bloc.
How Can You Navigate Market Volatility?
With interest rate shifts and currency fluctuations in play, businesses and investors should stay informed and agile. For expert insights on how these changes could impact your strategy—or to capitalise on emerging market trends—reach out to our QuMoney specialists today.