On Thursday 6 June, the ECB is widely expected to deliver a 25bp rate cut, largely because the governing council members have stated as much. The updated June staff projection is expected to suggest that the prevailing economic and monetary policy narrative stays broadly unchanged and we expect the rate cut to be formulated as a rollback of the ‘insurance hike’ from September last year. We expect the ECB to repeat the meeting-by-meeting and data-dependent approach to the policy rate path beyond June.
We have revised our ECB rate path for the first time in more than 12 months and now expect the ECB to deliver two rate cuts this year (June and December), and three cuts next year. This will bring the deposit rate at 2.75% by the end of 2025.
Markets have already repriced the ECB expectations for this year and points to 61bp cut this year.
New ECB call reflects a stronger start to 2024 and sticky inflation
The incoming inflation since the start of the year has been stronger than anticipated, mainly due to the service sector. In addition, most recent indicators suggest that the worst is over in the manufacturing sector, where for example the order-inventory balance in May increased to a two-year high. Overall, we find the resilience of the European economy noticeable, which is reflected in the labour market strength being historically tight with the number of people employed growing by 0.3% q/q in Q1 24.
The new round of staff projections is expected to largely show cosmetic changes, and thus not warranting a change to the narrative. With economic data for Q1 better than expected, we expect a minor lift to the growth profile this year. Inflation is expected to show mechanical changes, reflecting the technical assumptions. However, we will closely monitor the wage growth assumptions that feed into this projection round, where we note clear upside risk. A recent ECB blog indicated that 4.1% negotiated wage growth for 2024 was assumed at previous meetings, compared with the Q1 24 data release of 4.7%. In terms of the technical assumptions change since the 24 March cut-off date, we see most indicators as broadly unchanged, except the ECB front-end pricing. End-2024 ECB pricing: +47bp, effective exchange rate: +1.2%, Brent (in EUR): -0.7%, 10y nominal GDP weighted yield: +15bp, 10y real GDP weighted yield: +10bp.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks

EUR/USD clings to gains above 1.1700 amid EU-US trade optimism
EUR/USD posts small gains above 1.1700 in the European session on Thursday. The pair stays supported as the US Dollar faces headwinds from lingering US tariffs and economic woes while the Euro capitalizes on increased hopes of an EU-US trade deal. Attention turns to central bank talks and mid-tier US data for fresh trading impetus.

Crypto market sees $500 million in liquidation as Bitcoin hit record highs amid dovish Fed minutes
Bitcoin reached a new all-time high of $111,999 on Wednesday amid dovish Fed minutes, fueling wider market optimism. CoinGlass data shows that over $500 million in leveraged positions were liquidated across crypto markets in the past 24 hours.

GBP/USD stays well bid above 1.3600 as US Dollar continues to sag
GBP/USD trades with moderate gains above 1.3600 in European trading on Thursday. The US Dollar softens against the Pound Sterling amid growing uncertainty around the impact of Trump's tariffs on the economy and the Fed's interest rate outlook. Fedspeak and US data are awaited.

Gold price struggles to capitalize on its modest intraday gains amid mixed cues
Gold price (XAU/USD) trims a part of modest intraday gains, though it manages to retain positive bias for the second straight day and trades around the $3,320 area during the early European session on Thursday.

New US tariffs target Asia, but some countries stand to gain
President Trump’s new tariffs are higher than expected for most Asian economies. Moreover, most countries will face additional tariff rates on transshipments. The new announcements are silent on Singapore, India and the Philippines, which might stand to benefit from tariff concessions if negotiations progress favourably.

Best Brokers for EUR/USD Trading
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.