Market Analysis

ECB Chief Economist Philip Lane emphasized in an interview with Spanish newspaper El Confidencial that the case for a European Central Bank interest rate cut in June is gaining strength, particularly as services inflation shows signs of easing. 

Lane noted that recent data, including April's euro area inflation estimate and first-quarter GDP figures, have bolstered confidence in the ECB's projection that inflation will return to its 2% target by mid-2025.

Lane indicated that his confidence in achieving this target has improved since the ECB's April meeting, although he highlighted the importance of forthcoming data releases in the weeks ahead.

Market sentiment also leans towards an interest rate cut in June, with investors largely anticipating such a move. However, uncertainty surrounds subsequent actions, partly fueled by the U.S. Federal Reserve's indication of potential delays in its own policy easing.

While the ECB stresses its independence from the Fed, a growing interest rate differential between the two central banks could influence the euro's strength and European inflation dynamics, potentially tempering the ECB's willingness to act unilaterally.

Lane pointed out that April's inflation data reflected positive developments in services prices, underscoring the ECB's ongoing focus on this sector to prevent disinflationary pressures in the future.

Euro area inflation currently sits at 2.4%, with the ECB anticipating fluctuations around this level throughout the year before a decline in 2025.

Paraphrasing text from "Reuters" all rights reserved by the original author.