Euro Area Inflation Pressures Balanced; Higher Long-End Yields A Concern

Next Rate Change to Consider Inflation, Growth, Exchange Rate The Rating Agency Does Not Expert Any Further Ecb Rate Cuts This Year, But The Ecb Will Keep It Options Open. The Bias Late This Year or Next Year is Towards EASING RATHER THAN TIGHETENING. The Next Change of the Deposit Rate from It Current 2% Will Hinge on Inflation Dynamics, US-EU Trade Relations, The Economy’s Growth Tradery and the Exchange Rate. The Euro has strengten 13% against the dollar this year.

Any Move Significantly Above 1.20 Against the Dollar Could Provoke Concerns AROUND DEFLATION RISKS AND COMPETITITITY. As the Main Alternative Reserve Currency to the Dollar, the European Benefitted from the Uncertainties AROUND US TRADE AND FISCAL Policy and A Deliberate US Strategy Tovalue.

Another Factor that May Become IncreASINGLY CRUCAL IS US Policy. The resumption of US Rate Cuts Plus Market and Political Pressure for More Fed EASING MAY PUT INCREASING PRESSURE ON THE ECB IF DIVERING RATES BETWEEN THE USA AND The European Sustain Euro.Figure 1). If Left Unchecked, A Stronger European Furthermine Inflation, Potentilly Pushing It Below Target and Forcing The ECB to Respond.

Figure 1. Federal Reserve Seen Cutting Further With The Ecb Tentathyloy On Hold

Official Rates, %, with Scope End-Year Projects for 2025-26