On June 5, the European Central Bank will conclude its next meeting. On the one hand, the outcome seems clear: the central bank is almost certain to cut interest rates by 25 basis points — for the eighth time in a row. The CPI growth report published on Tuesday left no doubt that the ECB will implement this scenario in June. However, the same report has simultaneously fueled dovish expectations regarding the future pace of monetary policy easing. This situation could unexpectedly favor the euro if the ECB does not "live up to the dovish expectations." Given recent moderately hawkish statements from some ECB members, such an outcome cannot be ruled out.
According to general market expectations, the ECB will cut rates by 25 basis points in June and again by the same margin in the year's second half, bringing the deposit rate down to 1.75%. This is the base case scenario, widely expected and likely to be calmly accepted by the market. Thus, the euro is likely to hold its ground if the ECB cuts the rate by 25 points and does not rule out another cut by the end of 2025. However, any deviation from this scenario would trigger increased volatility in EUR/USD.
As for the formal outcome, there is little doubt: the central bank is certain to cut the rate by 25 basis points. Last week, several ECB officials—including Pierre Wunsch, Francois Villeroy de Galhau, and Mario Centeno—effectively pre-announced the move. The eurozone's CPI growth data "cemented" the 25-point cut scenario.
The overall Consumer Price Index dropped to 1.9% y/y — the lowest reading since September last year. Overall inflation has fallen below the ECB's 2% target for the first time in eight months. Most analysts had forecast a decline to 2.0% after two months at 2.2%. The core CPI also fell sharply to 2.3% y/y — the lowest since February 2022.
In theory, this outcome increases the likelihood that the ECB will cut rates in June and adopt dovish rhetoric, hinting at further rounds of monetary easing. However, under current circumstances, this theory may not hold. Previous statements from some ECB officials suggest that the central bank might adopt a moderately hawkish stance following the June meeting.
For instance, Bank of Italy Governor Fabio Panetta stated last week that the room for further rate cuts had "significantly narrowed." He emphasized that subsequent decisions should be assessed individually, weighing data, inflation, and economic growth forecasts.
Similarly, Bundesbank President Joachim Nagel noted at the G7 finance ministers and central bank governors summit that the ECB must act cautiously, given the uncertainty about how U.S. President Donald Trump's trade policies will impact the European economy.
According to economists surveyed by Bloomberg, the June cut will likely be the last unanimous decision on monetary policy easing this year. Moving forward, internal disagreements are expected. Some ECB members argue that further rate cuts could trigger a surge in government spending across European countries, while others — the dovish camp — insist on continued easing to stimulate economic growth.
Analysts point out that a 2% deposit rate (which will be reached after the June meeting) is considered neutral by most ECB Governing Council members — a level at which monetary policy neither restricts nor stimulates economic activity. Thus, any additional steps will be the subject of intense debate.
Given these circumstances, the ECB will likely deliver cautious rhetoric after the June meeting, with ECB President Christine Lagarde sticking to broad, vague statements without specific commitments.
If the ECB follows this scenario (a 25-point cut + cautious commentary), the euro will receive substantial support despite the actual policy easing. The June rate cut has long been priced in, but the future path of monetary policy remains unclear. If the scales tip toward a wait-and-see stance, the euro will benefit.
Technical Perspective
From a technical standpoint, EUR/USD remains between the middle and upper lines of the Bollinger Bands and above all Ichimoku indicator lines (including the Kumo cloud), demonstrating a bullish "Parade of Lines" signal. Southern pullbacks should be viewed as opportunities to open long positions. The targets for the upward movement are 1.1450 (upper Bollinger Band on D1), 1.1470 (upper Bollinger Band on H4), and the psychologically significant round level of 1.1500.
