ECB Signals Caution After Rate Cut as Euro Gains Ground

Traders bolstered the euro on Thursday amid signals from the European Central Bank (ECB) of cautious post-rate-cut plans, easing previous concerns over French political turmoil.

The ECB maintained its deposit rate at 3.75% after June’s cut from 4%, the first in five years, with President Christine Lagarde emphasizing flexibility in future rate decisions.

Federal Reserve Chair Jerome Powell’s confidence in U.S. inflation moderation temporarily boosted the euro over 2% against the dollar this month, recovering from June’s 1% dip. Market analysts noted reduced fears of French political risks and expected Fed rate cuts, softening the dollar against major currencies.

However, the euro faced challenges against the Swiss franc and sterling, with concerns over potential dollar strength if Donald Trump is re-elected due to proposed import tariffs impacting the eurozone.

Currency markets foresee more Fed rate cuts than ECB cuts by year-end, reflecting weakening dollar support. The dollar index dropped 2% in July, contributing to the euro’s recovery from June’s political instability in France and fiscal concerns in the eurozone.

While fears of a eurozone fiscal crisis have eased, lingering risks include global trade conflicts and Trump’s tariff threats, which could affect eurozone exports.

ECB President Lagarde highlighted these growth concerns amid a cautious approach to future rate adjustments. Analysts expect modest euro movements against the dollar, anticipating gradual ECB rate cuts ahead.