Interest rates in the euro area remain unchanged.  But the countdown has already begun

The European Central Bank kept interest rates unchanged. Thus, one of the most important factors determining the European economy remains at an all-time high of 4%.

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Thursday's decision was in line with general expectations, and the possibility of a reduction did not even reach 5%. Meanwhile, as Bartosz Sawicki, an analyst at Cinkciarz.pl points out, The first rate cut is fast approaching and should already take place at the June 6 meeting.

“Although such a move was already priced at 80%, CEO Christine Lagarde avoided obvious statements like the plague at the press conference,” Sawicki emphasizes.

Sawicki also stresses that the threat of failure to meet the ECB's forecast that inflation will stabilize near the target in 2025 is not increasing due to weak economic growth in the eurozone. “as a result of Recently, there have been signals from the ECB Governing Council that a monetary easing cycle will be possible as early as this quarter.” – Indicates.

Financial markets, in turn, expect the cost of funds in the euro area to fall by a total of one percentage point over the next 12 months. However, as the Cinkciarz.pl analyst points out, the prices of the EUR/USD pair will depend mainly on changes in the perception of the Fed's intentions, which have been very dynamic recently.

“A third straight higher-than-expected inflation reading in the US has dampened investors' hopes for a reduction in inflation in June,” Sawicki wrote. In his view, everything currently indicates that the ECB will be the third central bank of advanced economies (after the Swiss National Bank and the Riksbank) to start easing monetary policy.

Lagarde's discipline saved the euro from falling

The analyst also draws attention to the critical situation of the EUR/USD exchange rate ahead of the European Central Bank meeting. “After Wednesday's sharp 1 percent drop, the euro was hovering just above this year's low. The euro was like a boxer swinging on the ropes,” Sawicki clearly describes the situation. As he points out, the reception of Christine Lagarde's comments at the press conference could have broken down important barriers and opened the way to expanding the dollar's dominance and pushing USD/PLN rates towards PLN 4.0. “However, the decision-maker remained reserved and… I maintained a neutral stance“This protected the euro from further depreciation of the currency,” confirms the Cinkciarz.pl analyst.

The dollar does not have much upside potential in the medium term

Despite the strong US inflation and economic situation, Cinkciarz.pl believes that the dollar does not have much upside potential in the medium term.

Markets now expect the ECB to cut interest rates three months early and cut the cost of money by about half a percentage point more than the Fed next year. – We read in the comment.

According to Cinkciarz.pl analysts, it appears that the dollar may come under pressure again when price rises in the US normalize later in the year due to falling rents and shrinking household disposable income.

Our fintech expects a several percent increase in EUR/USD above 1.12 in the second part of the year.” – informed Sawicki. The forecast of Cinkciarz.pl, which in the latest Bloomberg rankings maintained the position of the institution that most accurately forecasts the EUR/PLN exchange rate in the world, assumes a shift in the equilibrium point of quotes to around 4.25. The analyst concludes that “as a result At the end of the year we should pay about PLN 3.75.”

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