ECB's Rate Cut Dilemma Amid U.S. Trade Policy Shifts

The European Central Bank (ECB) is relieved as the new U.S. administration refrains from imposing expected trade tariffs. This move influences investor expectations about interest rate cuts, although uncertainties remain due to President Trump's unpredictable policies. The ECB is likely to continue with rate cuts this year.

The European Central Bank (ECB) policymakers have found relief as the new U.S. administration has not enforced the anticipated broad trade tariffs. This eased pressure suggests that a rate cut next week is nearly certain.

U.S. President Donald Trump's initial policies have not targeted Europe, positively impacting the euro and reducing oil prices, which helps the ECB maintain its rate-cutting trajectory. Investors, who had pricing concerns due to potential tariffs, now see four ECB rate cuts in 2021 as probable.

The dollar's post-election rise had influenced market expectations, yet with its recent dip, the inflationary pressure on Europe might ease. Economists suggest that Trump's broader policies might push the ECB to continue cutting rates, countering any negative growth implications.

(With inputs from agencies.)