ECB Keeps Rates at 2% Amid Trump Tariff Threats

The European Central Bank (ECB) has chosen to maintain its current monetary policy despite escalating global trade tensions sparked by U.S. President Donald Trump's threats to impose a 30% tariff on imports. The ECB decided to keep interest rates at 2% and delay any reduction in borrowing costs, opting to observe the situation before taking further action. This decision comes just before the ECB's seven-week summer break, indicating a cautious approach from policymakers who prefer to wait for more concrete data before making significant changes.

The ECB's strategy is clear: avoid hasty decisions. With many officials about to go on holiday, the bank is focusing on ensuring that inflation remains on target. By postponing any panic until the next set of economic projections are available in September, the ECB aims to make a more informed decision. This approach allows them to assess the impact of Trump's threats and other economic indicators before taking any action.

While the ECB is not taking immediate action, it acknowledges the growing pressures. The strengthening euro is negatively affecting exporters and lowering inflation forecasts. Additionally, France's budget issues are adding to the economic strain. The ECB is closely monitoring these developments and is prepared to consider a rate cut in September if necessary. President Christine Lagarde reiterated that "risks to growth are tilted to the downside," echoing concerns raised by economists.

The coming week will be crucial for the ECB as it receives key economic data. On Tuesday, the bank's own lending survey will be released, followed by a consumer confidence report on Wednesday and purchasing manager indexes on Thursday. These reports will provide valuable insights into the economic health of the region. Additionally, Germany's Ifo business confidence and Italy's economic sentiment numbers will be released on Friday, offering a comprehensive view of the economic landscape.

Globally, central banks are facing divergent challenges. In the U.S., the economic calendar is relatively light, with a housing report expected to show minimal changes in existing home sales. The U.S. housing market remains stagnant due to high mortgage rates and unaffordable prices. In Canada, business and consumer surveys will provide insights into inflation fears and investment trends, while retail sales data may confirm a retreat in consumer spending.

In Asia, countries are grappling with the impact of global trade chaos. South Korea will release export data, followed by confidence and retail numbers. China is expected to maintain its loan prime rates for the second consecutive month. In Africa, South Africa's June inflation is anticipated to rise to 3.1% due to meat prices, while Nigeria's central bank is likely to keep rates frozen at 27.5% for the third straight time. In Latin America, Argentina's May GDP-proxy will be released, showing a significant jump in economic activity. Mexico's GDP-proxy print will follow April's surprise strength, and Brazil will close the week with its mid-month inflation report, which is expected to show a decline for the third consecutive time.