Increasing Trade Pressures Drive the European Central Bank Toward Another Reduction in Interest Rates

The European Central Bank (ECB) is expected to cut interest rates for the seventh consecutive time this week, amid growing economic pressures in the eurozone and escalating global trade tensions—particularly the unpredictable tariff policies of U.S. President Donald Trump.

As growth slows across the 20 countries using the euro and inflation remains subdued, the case for further monetary easing has strengthened. Although eurozone inflation reached 2.2% in April—slightly above the ECB’s target—recent indicators suggest that inflationary pressures are fading more rapidly than anticipated.

The ECB is likely to reduce its deposit rate by 25 basis points to 2% during this week’s Governing Council meeting. However, this cut may mark the end of the current easing cycle, with a potential pause in July as policymakers assess updated economic conditions.

This monetary path contrasts with that of the U.S. Federal Reserve, which recently kept rates unchanged, concerned that Trump’s tariff measures could fuel inflationary risks.

Meanwhile, Europe faces mounting strain from U.S. tariffs imposed on its exports of cars, steel, and aluminum—measures that could soon escalate to 50%, based on recent threats from Washington. While some tariff hikes have been delayed to allow for negotiations, the broader trade conflict continues to unsettle European markets.

These developments have deepened economic uncertainty, placing the ECB in a difficult position as it balances the need to support growth with its mandate to maintain price stability.

ECB President Christine Lagarde recently described the global economic order as “fracturing,” highlighting a shift away from multilateral cooperation toward zero-sum trade battles that threaten the rules-based system long anchored by U.S. leadership.

All eyes now turn to the upcoming inflation estimate from Eurostat, due Tuesday, ahead of the ECB meeting. The central bank is also expected to revise down its growth and inflation forecasts in light of the trade war’s mounting impact and weakening global demand.