ECB Cuts Rates Again As US Tariffs Weigh On Economic Outlook

The European Central Bank (ECB) cut its benchmark interest rates from 2.50% to 2.25% on April 17. The ECB slashed rates to support a struggling eurozone economy facing high US tariffs.

The bank noted that rising US tariffs on EU goods, now averaging 13%, will harm the Eurozone’s economic outlook.

Trade Disputes Hitting Eurozone’s Growth

The ECB’s rate cuts come amid trade tensions caused by President Trump’s tariffs, which threaten eurozone growth.

As a result, ING revised its eurozone GDP forecasts, now expecting growth of 0.6% in 2025 (down from 0.7%) and 1.0% in 2026 (down from 1.4%).

Although Germany approved a historic spending package, which raised the region’s outlook, the US-EU trade disputes will certainly dash hopes of the eurozone recovery.

President Trump imposed a 10% tariff on EU exports to the US and threatened to increase it to 20%. In addition to the 10% base levy, he added a 25% tariff on aluminium, steel, and cars imported into the United States.

The possibility of a global trade war—which tanked stock markets—has affected consumer, business, and investor confidence.

To ease tensions, President Trump announced a 90-day pause on April 10 for countries facing higher US tariffs, excluding China.

The pause allows for trade negotiations between the United States and its key trading partners, including the Eurozone.

Inflation Outlook

The Eurozone inflation rate hit 2.2%, down from February’s 2.3%. Thus, inflation at 2.2% aligns closely with the ECB’s 2% target. Falling energy prices and a stronger euro, up over 9% since March, have contributed to lower inflation in the euro area.

Core inflation, excluding energy and food, fell to 2.4%, the lowest since early 2022. Annual services inflation decreased from 3.7% in February to 3.4%, marking the lowest level in nearly three years.

However, the ECB warns that ongoing trade tensions could further suppress inflation. Therefore, some economists predict the ECB may lower rates to 1.25% by October if the economy worsens.

Amid slowing Eurozone growth and global trade tensions, the consensus points to additional rate cuts as low as 1.5% by September.

ECB Rate Decisions: April 2024 – April 2025 

From April 2024 to April 17, 2025, the European Central Bank (ECB) has made several key interest rate decisions to spur economic growth across the Eurozone.

After a cycle of rate hikes in 2022 and 2023 to curb inflation, the ECB began slowly cutting interest rates in April 2024 amid sluggish growth.

Market Reactions to ECB Rate Cuts

After the ECB cut the key deposit rate to 2.25% from 2.50%, the global financial market reacted with mixed responses.

The Stoxx Europe 600 index closed lower, primarily due to downturns in the healthcare and technology sectors.

The U.K.’s FTSE 100 remained stable during the session, ending trade at 8,275.66. While Germany’s DAX fell by 0.5% to close at 21,205.86, France’s CAC declined by 0.6% to close at 7,285.86.

In addition, the S&P 500 closed at 5,282.70 (up 0.13%), and the Nasdaq composite closed unchanged at 18,258.09.

Siemens Energy’s shares rose by 10% after the company raised its fiscal 2025 outlook. Hermès, the French Birkin bag maker and now the largest luxury firm by market cap, fell 3.2% due to a slight sales miss.

In bond markets, US Treasury yields have remained at yesterday’s level, with the 10-year bond yield currently at 4.31%. Eurozone bond yields decreased slightly, with the 10-year German bund yielding 2.47%, down from 2.51% recorded on April 16.

In the forex market, the Euro hovered around its three-year high of $1.37 against the dollar.

Gold’s rally has paused amid optimism over US-Japan trade talks, holding steady at around $3,322 an ounce after a record high of $3,352 on April 16

Finally, bitcoin reached $84,573, down 0.3% compared to April 16 price level.

Could the ECB Rate Cuts be Beneficial to the Eurozone?

Although tariffs increase the cost of foreign imports, economists predict that Trump’s trade war may lead to deflation in the eurozone.

According to the ECB, economic uncertainty limits spending. However, there is also the prospect of trade redirection from other countries.

For Instance, China faces a 145% tariff on exports to the United States, prompting many producers to seek alternative markets.

An influx of redirected goods in the eurozone will increase supply relative to demand, leading to lower prices.

In addition, the strong Euro is making imports cheaper for Europeans. On April 17, the Euro reached its strongest level in three years as investors questioned the security of the US Dollar.