In the latest twist in the ongoing saga of global monetary policy, two of Wall Street’s financial powerhouses—Goldman Sachs and J.P. Morgan—have both revised their forecasts for further interest rate cuts by the European Central Bank (ECB). Their new outlook: the ECB is likely to keep its main interest rate steady at 2% for the foreseeable future, citing an impressively resilient Eurozone economy and renewed optimism over the prospect of a broad tariff deal between the European Union and the United States.
A Policy Pause, Not a Pivot
On July 25, the ECB announced it would hold all policy rates unchanged at 2%, following a series of eight rate cuts since June 2024. During her press conference, ECB President Christine Lagarde emphasized the region’s economic stability, saying, “We are in this wait-and-watch situation. The economy is now in a good place.” This tone marks a clear shift from the more dovish stance seen earlier in the cycle.
Goldman Sachs, one of the first to react, stated in a note to clients that it no longer expects any further ECB rate cuts in 2025, a significant reversal from earlier predictions of policy easing. Meanwhile, J.P. Morgan has pushed its anticipated next rate cut from September back to October.
This recalibration comes as money markets signal growing uncertainty. Traders are attaching only a 30% probability to another ECB rate cut before the year’s end, reflecting doubts about whether rates will drop below their current level by December.
The Trade Deal Factor
The immediate catalyst for this recalibration appears to be renewed hope for a comprehensive EU-U.S. tariff agreement. Market chatter and diplomatic sources suggest that a deal imposing a 15% tariff on EU goods may be imminent.
Earlier this month, former President Trump threatened a 30% tariff on all EU imports, raising fears of a transatlantic trade war. However, EU and U.S. negotiators are reportedly making progress, which has supported investor confidence and, by extension, Eurozone economic stability.
The prospect of de-escalating tariff threats acts as a buffer for European exporters—particularly those in the industrial, automotive, and luxury sectors—allowing the ECB to avoid a hasty sequence of additional rate cuts.
Diverging Views Among Banks
Despite the caution from Goldman Sachs and J.P. Morgan, several other major banks—including Bank of America, Barclays, Citigroup, Deutsche Bank, and Morgan Stanley—are still calling for a September rate cut. However, even these institutions admit the risks to their base-case scenario are increasing.
Morgan Stanley analysts wrote: “The risks to that view have clearly increased. Should economic data continue to outperform, we believe the ECB could extend its current hold into December.”
iXDeep: Implications for Forex, Crypto, and Global Markets
The shifting outlook for ECB monetary policy goes far beyond the Eurozone bond market. Here’s how it could shape broader financial landscapes:
Forex:
The ECB’s pause has so far contributed to EUR/USD stability, bolstering the euro on FX markets. If the ECB remains hawkish while the Federal Reserve moves to cut, the euro could appreciate more, impacting exporters and altering cross-border investment flows. Conversely, escalation in trade tensions could trigger risk-off sentiment and strengthen the USD.
Crypto:
A “wait and see” ECB may cool speculative demand for euro-based stablecoins or tokenized euro assets in the short term. However, if EU-U.S. trade tensions flare or growth disappoints, crypto could regain its appeal as a hedge against macro uncertainty, especially for European investors wary of fiat devaluation or new tariffs on digital services.
Risk Assets and Bonds:
Equity investors may see more volatility in sectors relying on US-EU trade or susceptible to interest rate sensitivity (banks, automotives, luxury goods). Meanwhile, bond yields across the Eurozone could remain anchored, with investors awaiting clear direction from central bank policy and trade diplomacy.
The iXbroker Perspective:
Our analysts see this as confirmation of a new, data-dependent era for ECB policy. As both uncertainty and opportunity rise, clients should monitor economic data closely and remain agile across Forex, commodities, and digital assets.
