Can the euro continue to rise? Will the euro keep falling under the central bank's interest rate cuts?

On June 5th, the European Central Bank is set to announce its interest rate decision, which will directly impact the euro’s movement. Market consensus expects a 25 basis point cut in the deposit rate to 2%. This will be the eighth rate cut by the ECB in the past 12 months. The question is—will the euro keep falling?

Positive Signals from Inflation Data Release

Latest data shows that the harmonized CPI in the Eurozone for May has fallen to 1.9% year-on-year, the first time in 8 months that it has dropped below the ECB’s 2% target. Against the backdrop of declining inflation, the ECB’s downward revision of inflation and economic growth forecasts has become a certainty. Market consensus is that, aside from this rate cut in June, the ECB will cut rates once more before the end of the year, with the deposit rate ultimately stabilizing around 1.75%.

Rate Cuts Do Not Necessarily Mean a Weakening Euro

Here is a key reversal: given the overall weakening pressure on the US dollar, the euro may actually remain resilient during the rate-cut cycle. U.S. bank analysis breaks the stereotype that “rate cuts necessarily lead to depreciation”—even if the ECB acts as expected, the euro will not react violently.

From a technical perspective, LSEG data indicates that the market has fully priced in the rate cut expectations, meaning the negative impact on the euro has been pre-emptively priced in. The EUR/USD exchange rate is expected to stay within the 1.10-1.15 trading range, with buy orders during the exchange rate pullback continuing to limit euro declines.

The US dollar urgently needs economic data for support

Danske Bank analysts point out that the dollar needs significant improvements in economic fundamentals to regain upward momentum. Until then, the EUR/USD will continue to rise. Strategists generally believe that the market has already priced in further rate cuts, and in the short term, the main driver of the euro’s movement is not the rate cut itself but the strength or weakness of the dollar.

From the current macro landscape, Trump’s trade policies’ drag on the Eurozone economy is unlikely to be completely reversed by simple rate cuts, but this is also the reason why the euro is relatively resistant to declines—the market has already fully anticipated it.