The ECB is on the verge of cutting interest rates. How will the euro's trend be predicted? The market has already priced it in.

June’s European Central Bank interest rate meeting is approaching, and a decision that could impact the euro’s trajectory is brewing. The market widely expects the ECB deposit rate to be cut by 25 basis points to 2%, marking the eighth rate cut in the past year.

Inflation Hits Target, Rate Cut Seems Inevitable

The key factor driving this decision is the significant decline in inflation data in the Eurozone. The latest May harmonized CPI preliminary figures fell to 1.9%, hitting an eight-month low and falling below the ECB’s 2% target for the first time. This has led to a reassessment of the economic outlook by the ECB—when releasing its quarterly forecasts, the institution is expected to lower its inflation and growth projections for this year. This opens the door for further easing.

One More Before Year-End?

Consensus among analysts is quite clear: the ECB will cut rates again later this year. At this pace, the deposit rate will eventually stabilize around 1.75%. According to the latest data from LSEG, the market has fully priced in a rate cut in June and is preparing for a second cut before the end of the year.

Euro Outlook: Bullish Trend Remains Challenging to Break

The key question is—will a rate cut weaken the euro? The answer may surprise many. U.S. Trust Bank’s view is worth noting: given the overall weakening pressure on the dollar itself, even if the ECB continues easing, the euro is unlikely to experience a significant depreciation. This is because the impact of narrowing interest rate differentials is offset by the dollar’s own weakness.

Strategic analysts further point out that the market has already priced in a series of rate cuts, and the current focus is on the self-stabilizing mechanism of trading flows. The euro/dollar exchange rate maintaining within the 1.10-1.15 USD range has become a consensus expectation. When the exchange rate pulls back, buying interest surges to support it, thereby limiting further euro declines.

Analysts at Danske Bank focus on the conditions needed for the dollar’s resurgence: the dollar needs to see a clear improvement in U.S. economic data to regain momentum. Until that turning point occurs, the euro/dollar outlook remains bullish. In short, rate cuts do not necessarily mean a weaker euro; the market’s delicate balance is rewriting traditional exchange rate logic.