Can the euro still rise? It all depends on this central bank meeting

June ECB Decision Will Be a Key Turning Point for the Euro

The European Central Bank is set to announce its latest interest rate decision on June 5th, with market expectations of a 25 basis point cut to 2%. This will be the eighth rate cut by the ECB in the past year. From the most investor-focused perspective, rate cuts typically imply downward pressure on the currency, but the euro’s situation may not be that straightforward.

Inflation Data Supports Rate Cuts, But Doesn’t Necessarily Mean a Weakening Euro

Latest data shows that the harmonized CPI in the Eurozone for May was an initial 1.9% year-on-year, the first time in eight months to fall below the ECB’s 2% target. Based on this inflation outlook, the ECB is expected to revise down both inflation and growth forecasts in its quarterly projections. Analysts generally believe that the ECB will cut rates once more before the end of the year, after which the deposit rate will stabilize around 1.75%.

On the surface, consecutive rate cuts should pressure the euro downward. However, in reality, market institutions have a contrary outlook on the euro’s prospects.

Weakening US Dollar Is a Key Variable—Rate Cuts Could Actually Support the Euro

Analysis from U.S. Trust Bank indicates that the US dollar is currently in a generally weak phase, which means that even if the ECB continues to cut rates, the euro is unlikely to experience the anticipated sharp depreciation. In other words, the euro can still rise, with the key being the lack of upward momentum in the dollar.

From a technical perspective, the EUR/USD exchange rate is expected to fluctuate within the 1.10 to 1.15 dollar range. Danske Bank analysts point out that for the dollar to regain market support, it must rely on a clear improvement in US economic data. Until that condition is met, the euro against the dollar will continue to strengthen.

Market Has Already Priced in Rate Cut Expectations, Limiting Downside

More notably, institutional strategists emphasize that the market has fully priced in further rate cuts. This means the June rate decision is unlikely to be a surprise negative event—investors have already anticipated it. In this environment of well-expected moves, when the euro exchange rate pulls back, investors tend to buy on dips, further limiting the euro’s downside.

According to LSEG market data, expectations for a 25 basis point rate cut in June are very solid, with another rate cut expected by the end of the year. Therefore, even if the ECB cuts rates as scheduled, it is unlikely to change the euro’s upward trend.

Bottom Line

Rate cuts may cause short-term volatility in the euro, but the overall weakness of the dollar and market expectations jointly support the euro’s resilience. Whether the euro can continue to rise depends on when the dollar finds support. Until US economic data shows signs of a turning point, this wait may need to go on.