The euro has once again surpassed the $1.12 mark, bolstered by a weakened dollar. This shift followed an unexpected decline in US inflation and increased investor wariness regarding US-China trade talks, even though both nations had agreed on a 90-day tariff ceasefire in a bid to negotiate a more comprehensive agreement. Despite this truce, tariff levels remain high, with the average US tariff on Chinese imports lingering around 40%, in contrast to the previous 20%.
In terms of monetary policy, money markets are currently forecasting the European Central Bank's deposit facility rate to hit 1.79% by the end of the year. This is an increase from 1.67% late last Friday and substantially more than the 1.55% recorded in mid-April. Concurrently, markets are nearing a consensus, with a 95% likelihood priced in, that a rate cut will occur in June, as policymakers strive to stimulate growth amidst escalating US tariffs. ECB policymaker François Villeroy de Galhau suggested the potential for another rate cut by the summer. Meanwhile, his colleague Joachim Nagel conveyed optimism, indicating a "good probability" that inflation would move closer to the central bank's 2% target.
