Gold prices fall as geopolitical tensions ease; U.S. CPI looms
Investing.com -- The European Central Bank may be preparing to ease more aggressively, according to Validus Risk Management, as policymakers weigh trade disruptions and slowing growth.
“Sluggish economic growth amidst a backdrop of persistent EU-US trade tensions could… embolden the ECB into aggressive monetary easing to support domestic growth,” said Harun Thilak, Head of Capital Markets (North America) at Validus Risk Management.
At its April meeting, the ECB cut rates for the seventh time since June 2024, bringing the deposit facility rate to 2.25%.
Validus said this followed “a disinflationary trend, with headline inflation declining to 2.2% in March 2025 and core inflation falling to 2.4%, the lowest since early 2022.”
Earlier today, data showed that consumer prices in the eurozone rose by less than expected in May. The eurozone consumer price index (CPI) rose by 1.9% annually last month, below the ECB’s 2.0% target midpoint, decelerating from 2.2% in April. The ECB next meets on Thursday and is expected to reduce interest rates by 25 basis points once more.
While the ECB has previously taken “a cautious approach to monetary policy,” Validus has noted a change in tone.
“The ECB has maintained a data-dependant approach,” but its removal of “references to restrictive monetary policy suggests a shift toward a less contractionary stance,” wrote Thilak.
The firm added that the euro’s strength “faces risks from potential trade disruptions, sluggish growth and a subsequent aggressive accommodative policy from the ECB.”
Year-to-date, the euro has risen by almost 11% vs the USD, but Thilak says “a stronger EUR is a challenge for the export-driven economies in the EU especially amidst a backdrop of heightened volatility from persistent trade uncertainties.”
Trade tensions remain front of mind. “The US administration threatened to impose 50% tariffs on EU imports as of June 1, only to move the deadline back to July 9 after a productive phone call with the European Commission,” Validus said.
For dollar-based investors, Thilak added that they “can hedge for EUR weakness via FX forwards with FX forwards carry at extremely attractive levels.”