After the ECB's rate cut this time, can the euro continue to stay strong?

June 5th is the date for the interest rate decision announcement, and the market has long anticipated the European Central Bank’s move—most likely a 25 basis point cut, bringing the deposit rate down to 2%. Over the past year, the ECB has cut rates seven times in a row, and the pace has indeed been quite aggressive.

Inflation Data Has Become the Key Driver

The latest data shows that the harmonized CPI in the Eurozone for May fell to an initial 1.9% year-on-year, the first time in 8 months that it has dropped below the ECB’s 2% target. Simply put, the pace of price increases has significantly slowed, which directly opens up room for the central bank to continue easing. Coupled with ongoing trade policy pressures from Trump’s side affecting Europe’s economic outlook, this rate cut by the ECB has almost become a certainty.

LSEG’s latest data also confirms this—traders have fully priced in a 25 basis point rate cut in June. Interestingly, most analysts are still doing the math afterward, generally expecting the ECB to make one more move before the end of the year, ultimately stabilizing the deposit rate around 1.75%.

Will the Euro Crash Because of This? Not Necessarily

This is the question most investors care about. Intuitively, a rate cut by the central bank suggests the domestic currency will weaken, but reality is often more complex.

Let’s see what institutions say. UOB Bank’s view is quite interesting—considering that the US dollar itself is also weakening, even if the ECB cuts rates, the euro may not depreciate significantly. In other words, the dollar’s weakness might just offset the pressure caused by the rate cut on the euro.

Danske Bank analysts are more straightforward: for the dollar to regain buying interest, US economic data must show clear improvement. Until that happens, the EUR/USD might continue to rise.

What Might Happen in Practice

Strategists point out that the market has already priced in expectations of further rate cuts, so this decision is unlikely to cause a “shock.” They expect EUR/USD to fluctuate within the 1.10-1.15 range, with investors tending to buy on dips, which naturally limits the euro’s downside.

In summary: a June rate cut by the ECB is almost certain, but don’t rush to short the euro. Weak dollar, market already priced in, and investors buying at lower levels—these factors combined suggest the euro may be more resilient than expected. For traders focusing on EUR/CNY exchange rate forecasts, the key factor to watch is the dollar’s movement, not just the rate cut event itself.