Gabriel Makhlouf, a policymaker at the European Central Bank (ECB), stated he will not comment on the possibility of an interest rate cut in April. He acknowledged that disinflation is progressing positively.
Markets are anticipating a potential rate cut, with a probability of approximately 65% reflected in money market pricing, remaining stable despite recent PMI data. Attention will focus on the potential impacts of Trump tariffs announced for 2 April and the upcoming Eurozone Consumer Price Index report scheduled for 1 April.
Cautious Stance From The ECB
Makhlouf’s remarks highlight a cautious stance from the European Central Bank, avoiding any firm commitments on rate adjustments. His observation that disinflation is proceeding in the right direction suggests that policymakers see progress towards price stability. However, this does not confirm an immediate shift in monetary policy.
Market pricing still suggests a strong expectation for an interest rate reduction, even after the latest purchasing managers’ index figures. Despite this, external factors could influence policy decisions before April’s meetings. The looming tariff announcements, expected from the United States on 2 April, may inject further complications. If trade tensions escalate, potential reactions within currency and bond markets could alter current expectations.
Before that, the Eurozone inflation update on 1 April will likely be the most relevant data point. If price pressures continue easing, as Makhlouf indicated, this could reinforce current market bets. On the other hand, if inflation proves more persistent, investors may need to reassess timing projections.
Potential Market Reactions
We recognise that rate expectations are not shifting dramatically week to week, but this can change quickly with the right trigger. A re-pricing in response to unexpected inflation data or fresh concerns from global trade developments could reshape short-term positioning. There is clear stability in rate cut expectations for now, but every new data release carries the potential to push sentiment firmly in either direction.
