FX.co ★ ECB Signals Caution Amid Trade Risks and Cooling Inflation: Minutes

In a move aimed at maintaining inflation expectations and averting unnecessary tightening of financial conditions, ECB officials implemented an eighth consecutive interest rate reduction last month, as highlighted in the minutes from the June 3–5 meeting. The policymakers pointed to "highly uncertain" global conditions, underscored by ongoing trade tensions that are likely to persist and possibly intensify. Given this uncertainty and the possibility of inflationary disruptions in either direction, officials stressed the importance of maintaining flexibility and avoiding rigid commitment to future policy actions. The likelihood of a pause in July has increased, with the majority of officials indicating a preference to await clearer data and further developments in international trade discussions before any further action. Currently, inflation is anticipated to dip below the ECB’s 2% target later this year and remain low for about 18 months, influenced by a strong euro, declining energy prices, and inexpensive imports from China. Market analysts now foresee a single additional rate cut before the year concludes, with a potential shift towards tightening anticipated by late 2026.