- Traders expect at least one more cut this year
- Berlin, Paris mull severe reprisals on US trade—report
- ECB decision due Thursday at 12:15 GMT / 14:15 CET
- Press conference set for 12:45 GMT / 14:45 CET

By Eric Culp
European Editor, LiveSquawk News
@eculp.bsky.social
@EricCulpLS

23 July 2025 | 12:15 GMT

FRANKFURT – After lowering interest rates at eight of the last nine monetary policy meetings, officials at the European Central Bank are expected to take a hands-off approach on Thursday.

An economists’ poll predicted the bank will leave its main interest rates unchanged, which would keep the deposit rate at 2.00% and the main refinancing rate at 2.15%. The bank’s 25-basis point reduction at its last meeting in early June represented its seventh straight rate cut.

Since then, inflation in the currency area has ticked higher, only to land at the rate the ECB prefers over the medium term, namely 2%. That reduces concerns about consumer price growth in the rate-decision equation.

Additionally, some measures of business and investor confidence have improved, further supporting the strategy of doing nothing to monetary policy. In Germany, the Eurozone’s largest economy, the Ifo business confidence measure has been rising since January, with Berlin spurring June’s increase thanks to its plans to invest hundreds of billions domestically. (July’s report is due the day after the ECB decision.) And this month’s ZEW investor confidence hit its highest mark since Russia attacked Ukraine three years ago.

However, most respondents to the ZEW poll had submitted their answers before the latest trade threat from US President Donald Trump, who announced that he would impose a 30% tariff on EU goods starting on 1 August. Talks are said to be continuing between the economic powerhouses, with Reuters reporting that Berlin and Paris are ready to go for the so-called nuclear option that would unleash a wide range of countermeasures via the trading bloc’s Anti-Coercion Instrument. Possible steps include tariffs, quotas, and limitations on bidding for EU government contracts. As Brussels has noted about the instrument, “The list of options is broad, and covers areas such as trade in goods, services, foreign direct investment, financial markets, public procurement, trade-related aspects of intellectual property rights, export controls, and more.”

There is a lot going on at the moment, and with inflation on target, rate-setters have a chance to sit back and take it all in. “The ECB has no incentive to make significant changes to its explicit or implicit messaging in July,” Deutsche Bank wrote. “Uncertainty remains high, new staff forecasts won’t be available until September, and the governing council has good reason to keep all options open and maintain the current zero-guidance, meeting-by-meeting, data-dependent approach to policy.”

Having seemingly weathered the storm at home, much of the pressure on the bank comes from abroad, according to analysts, including those at Deutsche: “Whether the ECB cuts rates further, and when, will depend on whether the expected inflation undershoot deepens and lengthens or not. This can be reduced to two key questions. First, is the net impact of US trade policy and European fiscal easing positive or negative for inflation? Second, is euro exchange rate appreciation disinflationary or not?”

The single currency was up more than 10% against the greenback at one point, and the pair was trading at 1.17 on Wednesday morning after touching 1.18 earlier this month.

Additionally, alongside all these considerations, there is the question of economic growth, a secondary remit at the bank. The Eurozone economy did surprisingly well in the first quarter, thanks largely to US buyers demanding European goods before Trump’s tariffs hit. While many economists have increased their forecasts for the euro area, concerns abound, especially with the recent volatility in international commerce and politics.

Observers say the next steps will depend on factors over which European central bankers have little or no sway: “We retain September as the time for the next cut but see a risk that the data and tariffs (and counter tariffs) may not be clear-cut by then, clouding the outlook,” Societe Generale said in a note. “The end of the year is likely to be more challenging for the ECB as, by then, downward-drifting headline inflation may have dragged down inflation expectations.”

Sign up for LiveSquawk and receive a discount with the code LSQEC$