The ECB left its deposit rate at 2.00%, marking the fourth consecutive meeting without a rate change. The main refinancing rate was held at 2.15%, while the marginal lending facility remained at 2.40%. Policymakers reiterated that they are not pre-committing to any future rate path, maintaining a data-dependent, meeting-by-meeting approach.

The decision reflects improving economic conditions across the euro area. The ECB revised its 2025 growth forecast upward to 1.4%, from a previous estimate of 1.2%, citing stronger domestic demand, a resilient labor market, and growing investment in AI-driven innovation. Growth is now expected to reach 1.2% in 2026, 1.4% in 2027, and remain at 1.4% in 2028.

Despite lingering weaknesses in manufacturing, particularly in Germany, the eurozone has weathered US tariffs better than anticipated. Third-quarter growth was revised up to 0.3%, exceeding expectations, while household spending and employment have continued to support overall momentum.

Inflation remains broadly under control, coming in at 2.1% in November, close to the ECB’s 2% target. New Eurosystem projections show headline inflation averaging 2.1% in 2025, 1.9% in 2026, 1.8% in 2027, and 2.0% in 2028. Services inflation and wage growth remain elevated, but an EU decision to delay the ETS2 carbon pricing system is expected to ease inflation pressures later in the decade.

ECB President Christine Lagarde recently noted that the euro area is operating close to its potential, while stressing the need to boost productivity. Looking ahead, Germany’s planned defense and infrastructure spending, enabled by lifting its debt brake, is expected to provide additional stimulus in 2026.

Markets are increasingly debating whether the ECB’s next move could be a rate hike in 2026. Executive Board member Isabel Schnabel has warned that inflation risks may now outweigh growth risks, while other policymakers, including France’s François Villeroy de Galhau, have emphasized that downside inflation risks remain significant and that undershooting the target would not be tolerated.

“The Governing Council is determined to ensure that inflation stabilises at its 2% target in the medium term,” the ECB said, underscoring its cautious stance amid mixed global signals.

The ECB’s hold contrasts with recent moves by other major central banks. The Bank of England cut rates on Thursday, while the US Federal Reserve lowered borrowing costs last week, highlighting a growing divergence in global monetary policy paths as Europe shows signs of steady, if unspectacular, economic strength.

Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.

Related: UK Inflation Slumps, Paving the Way for Bank of England Rate Cut

The post ECB Holds Rates at 2% as Eurozone Growth Proves More Resilient Than Expected first appeared on Finblog.

The MSCI All Country World Index dipped 0.2% as Asian markets retreated, with Hong Kong’s Hang Seng down 1.1% and Japan’s Topix falling 0.8%, pulling back from record territory. In contrast, US stock futures rose, helped by a calmer tone from President Trump toward Fed Chair Jerome Powell, along with renewed optimism around trade deals and AI-fueled earnings optimism.

“To do that is a big move, and I just don’t think it’s necessary,” Trump said when asked if he planned to fire Powell.
He added: “I believe he’ll do the right thing. I’d love him to lower interest rates.”

More about: Trump tours Fed construction project, calls for lower rates

Markets took the shift in tone as a sign of stability ahead of next week’s Federal Reserve decision, especially after Trump’s public criticism of Powell during Thursday’s tour of the Fed’s $2.5 billion renovation project.

Meanwhile, the S&P 500 notched a fourth consecutive record high on Thursday, driven by gains in tech and AI stocks, particularly Google (GOOG) after strong earnings.

Global Snapshot

Key Drivers

• Trump–Powell tensions cool: After weeks of harsh criticism, Trump said he doesn’t plan to fire Powell. While reiterating his call for lower rates, the softened rhetoric helped soothe market concerns over central bank independence.
• S&P 500 hits new high: The index closed at a fresh record for the fourth straight day, with optimism driven by Alphabet’s AI-led earnings and expectations of further rate stability.
• Intel beats but warns: Despite beating revenue estimates, Intel’s stock turned negative late Thursday after CEO Lip-Bu Tan confirmed layoffs and factory project cancellations, dampening initial enthusiasm.
• Oil climbs on trade optimism: Brent crude rose 0.73% to near $69.50 as investors priced in progress on US trade deals with Japan, the Philippines, and Indonesia, even as concerns lingered over increased Venezuelan supply.

ING analysts noted: “Trade talk optimism appears to be offsetting expectations for stronger Venezuelan supply.”

What’s Next

• Earnings: Key tech names including Apple, Meta, and Amazon are set to report next week, as Wall Street eyes the next leg of the AI rally.
• Fed Meeting: The FOMC will meet next week, with rate guidance in focus. Markets are currently pricing in fewer than two cuts this year.
• Trade Deadlines: The August 1 tariff deadline remains a wildcard. Hopes for broader deals are growing, but so are fears of baseline 15–30% tariffs if talks stall.

Related: China and EU Reach Narrow Agreements on Climate and Rare Earths

The post Global Rally Stalls in Asia, But Wall Street Futures Hold Gain first appeared on Finblog.

Since the beginning of 2025, the euro has surged over 11% against the dollar, reaching $1.18 — its highest level since 2021. The rally has also extended against the yen, pound, won, and Canadian dollar, suggesting the euro’s ascent is not merely a mirror of dollar weakness, but a broader sign of investor realignment.

A Flight from the Dollar

For decades, the US dollar has been the world’s undisputed reserve currency — a cornerstone of international finance and trade. But this year, as Trump’s tariffs roiled supply chains and the Federal Reserve came under political fire, cracks have begun to show.

“The dollar’s dominant role in the global financial system is no longer certain,” European Central Bank (ECB) President Christine Lagarde wrote last week, calling the moment a “profound shift in the global order.”

The dollar’s decline — down 13% year-to-date on a trade-weighted basis — has been driven by investor concern that Trump’s tariff war, now escalating with China and the EU, is destabilizing the global economy and politicizing US monetary institutions. Treasury Secretary Scott Bessent’s calls for internal Fed reviews and questions around Chair Jerome Powell’s future have only added to the uncertainty.

A Window of Opportunity for the Euro

While the euro has long been the second-most-used currency globally, it has never approached the dollar in global clout. That might now be changing. Lagarde argues that the current turmoil presents an opportunity for the euro to “gain global clout” — if the bloc can seize it.

Luis de Guindos, ECB Vice President, echoed the opportunity — and the risk. “If the euro climbs above $1.20, it becomes much more complicated,” he said, noting the economic drag a strong euro places on inflation and exports.

Indeed, the euro’s rise could become a liability. Eurozone inflation is now expected to average just 1.6% next year, well below the ECB’s 2% target. The stronger currency is pushing import prices down, tightening financial conditions even after eight ECB rate cuts in the past 12 months.

Corporate Pain: SAP, Adidas, Daimler Feel the Squeeze

Export-heavy European companies are already sounding the alarm.

• SAP, now Europe’s most valuable public company, warned that every 1¢ rise in EUR/USD cuts revenues by €30 million, unless hedged.
• Adidas cited “negative translation effects” in its overseas sales.
• Daimler, still reeling from Chinese competition and US tariffs, flagged FX volatility as a significant performance risk.

As Europe’s exports become more expensive globally, these firms face a double blow: Trump’s tariffs and an overvalued euro.

What’s Next?

Forecasts are mixed. A Bloomberg survey shows many expect the euro to hit $1.21 by early 2026. But Valentin Marinov, head of G10 FX at Crédit Agricole, believes the move is overdone and expects the euro to retreat toward $1.10 next year as rate differentials shift and recession risk looms.

Lagarde herself cautioned that a “global euro” won’t happen by default. “It must be earned,” she said, citing the need for deeper European capital markets, fiscal unity, and stronger political governance.

Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.

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The post As the Dollar Slides, the Euro Is Picking Up Speed first appeared on Finblog.

Behind the move: rising confidence in Europe’s recovery, waning fears about aggressive ECB cuts, and growing speculation that the Federal Reserve will slash rates at least twice before year-end. In contrast, the ECB is expected to ease just 25 basis points, giving the euro an interest rate advantage.

“The euro will continue to benefit from persistent dollar pessimism,” said Antonio Ruggiero, strategist at Convera.

Dollar in Retreat

The Bloomberg Dollar Spot Index closed the week down 1.2%, hovering near a three-year low. The dollar has fallen nearly 9% year-to-date, with speculative traders holding $20.1 billion in net short positions—their most bearish stance since mid-2023, according to CFTC data.

Adding to the dollar’s weakness:

• Trump’s push for Fed Chair Jerome Powell to resign
• Growing consensus that Trump will name a dovish replacement
• Weak GDP data and softening consumer spending

“The fortunes of the macro US economy for the back half of this year don’t look so great,” said Helen Given, FX trader at Monex.

Currency Traders Flip to Euro Bulls

Hedge funds have flipped bullish on the euro for the first time since April, and risk reversals on the dollar index have turned negative across the board, signaling bearish sentiment on the greenback.

UBS strategists now expect the euro to climb to $1.23 by year-end, with the Japanese yen forecast to strengthen to 130 per US dollar as US rates fall faster than peers across the G-10.

“US interest rates can decline more quickly in coming months than in much of the rest of G-10,” UBS wrote.

Euro’s Edge

The euro’s rise is partly driven by shifting global trade alignments and calls from EU policymakers to elevate the euro’s global role amid US volatility. Analysts also highlight Europe’s relative macro stability as a draw for investors fleeing the dollar.

“European currencies are best placed to transform the dollar’s weakness into strength,” wrote Bloomberg strategist Ven Ram. But he warned: “The euro’s journey higher will be far from linear.”

Macro Flash: Stagflation Fears Mount

Friday’s US data added to the dollar gloom:

• Personal spending dropped in May—the steepest decline in 2025
• The core PCE index, the Fed’s preferred inflation gauge, rose 0.2%, slightly above expectations

“Higher PCE readings and weaker personal spending feed into the stagflation story,” said Win Thin, global strategist at Brown Brothers Harriman. “Not a good combo for the dollar.”

The euro is surging, and the dollar is cracking under the weight of Fed policy shifts, political uncertainty, and soft economic data. As Trump presses for rate cuts and markets brace for a dovish Fed reset, European assets are once again in vogue—with the euro leading the charge.

Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.

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The post Euro Rallies to Highest Level Since 2021 as Dollar Slumps on Fed Rate Cut Bets first appeared on Finblog.

Rise of Gold: From Hedge to Heavyweight

Gold now makes up 20% of global foreign exchange reserves, up from an average of 16.5% in 2023, according to the European Central Bank (ECB). In contrast, the euro’s share has slipped to 16%, solidifying gold’s position as the world’s second-largest reserve asset by market value, behind the US dollar (which holds steady at 46–47%).

This shift marks a historic reversal and places gold at reserve levels not seen since the Bretton Woods era.

“Gold reserves held by central banks stand at levels close to those last seen in the 1960s,” the ECB reported.

The turning point began in 2022, following Russia’s full-scale invasion of Ukraine, which sparked a renewed rush into “safe haven” assets. Paired with high inflation, interest rate hikes, and rising fears of financial sanctions, gold quickly became a strategic reserve for nations navigating turbulent geopolitics.

Why Central Banks Bought So Much Gold

According to surveys conducted by the World Gold Council and ECB, central banks gave three main reasons for accumulating gold:

1. Long-term store of value and inflation hedge
2. Strong performance during crises
3. Portfolio diversification

Additionally, one in four central banks in emerging or developing economies cited fears of future sanctions and “monetary realignment” as major motives — especially China, India, and Turkey, which together added over 600 tonnes of gold to their reserves since 2021.

ECB data also indicates that countries aligned geopolitically with China and Russia have sharply increased their gold holdings since Q4 2021.

Appetite Wanes: Are Central Banks Nearing the Limit?

While 2024 marked record-breaking central bank gold purchases, analysts warn this momentum may not last.

• Gold demand from central banks jumped to 20% of global total (double the 2010s average)
• But Q1 2025 showed a 33% drop in central bank gold buying (World Gold Council data via ING)
• Chinese buying also slowed notably in recent months

“Institutions have played a key role in the gold rally and will probably continue buying gold — but at a slower pace,” said Hamad Hussain, economist at Capital Economics.

Still, the long-term trend favors gold, especially amid persistent geopolitical risk, trade fragmentation, and concerns about the US dollar’s dominance.

“Uncertainty is the new normal. Gold offers stability,” said Janet Mui, CFA, of RBC Brewin Dolphin.

Price Volatility Remains — But So Does Demand

Gold has seen a surge in price, hitting $3,380/oz in June 2025, before dipping slightly on market volatility and shifting US tariff policy. A soft US CPI print this week helped boost gold again, as rate cut hopes resurfaced.

Spot gold is currently trading around $3,360, with US gold futures up over 1%. The weaker US dollar index has also contributed to making gold cheaper for global buyers.

Silver Joining the Rally?

While gold takes the headlines, silver is quietly surging too. Inflows into silver ETFs are nearing historical highs, as investors bet on industrial demand, green tech applications, and a lagging catch-up to gold’s rally.

USD Still King — But For How Long?

Despite gold’s rise, the US dollar still accounts for nearly half of global reserves. But its declining trust as a safe haven is pushing central banks toward greater diversification, including not just gold but also other currencies and digital assets.

“As the US turns inward on trade, it makes sense for others to hedge with alternatives,” said Mui.

Gold’s rise to No. 2 is historic — but whether it maintains that spot depends on:

• Central bank buying trends in 2025–2026
• Global inflation and rate outlook
• Further geopolitical shocks
• US fiscal policy and dollar strength

For now, gold sits at the top of its modern era — a timeless asset that has once again proven its relevance in the age of currency wars and global fragmentation.

Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.

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The post Why gold beat Euro to become world’s second-largest reserve asset first appeared on Finblog.

U.S. markets are closed on Wednesday, likely leading to muted trading. The greenback dropped overnight due to lackluster U.S. retail sales, suggesting the Federal Reserve may cut rates sooner.

The euro rose 0.1% to $1.0746, recovering from a 1-1/2-month low. The yield gap between French and German government debt, a gauge of budget crisis risk in Europe, eased slightly but remained close to seven-year highs.

Marine Le Pen’s National Rally party indicated a potential for fiscal backtracking if it wins the July elections, while the European Central Bank may intervene to prevent disorderly yield spread widening.

The dollar index was flat at 105.20. Markets are pricing a 65% chance of a Fed rate cut in September, with 50 basis points of cuts expected this year.

Sterling rose 0.1% against the euro and 0.13% against the dollar. The Swiss Franc hit a seven-month high against the euro. The Australian dollar rose 0.29% against the U.S. dollar, aided by a hawkish Reserve Bank of Australia.

The yen remained stable, pressured by interest rate differentials between Japan and the U.S. Analysts expect slow monetary tightening by the Bank of Japan.

The post Dollar struggles for direction, euro close to 1-1/2-month low first appeared on Finblog.

The central bank stated, “Due to the introduction of restrictive measures by the United States against the Moscow Exchange Group, exchange trading and settlements of deliverable instruments in U.S. dollars and euros are suspended.” It will now use over-the-counter trading data to set official exchange rates for the dollar and euro.

Despite a public holiday in Russia, the central bank reassured the public that their dollar and euro bank deposits were secure, stating, “Companies and individuals can continue to buy and sell U.S. dollars and euros through Russian banks. All funds in U.S. dollars and euros in the accounts and deposits of citizens and companies remain safe.”

The Moscow Exchange confirmed that share trading and money market trades settled in dollars and euros would be discontinued.

The post Moscow Exchange Halts Dollar, Euro Trading on New US Sanctions first appeared on Finblog.

The potential for a right-wing victory in France has introduced political uncertainties that could challenge the European Union’s integration efforts, leading to a weakened euro. The euro also neared a one-month low against the dollar, as traders awaited U.S. inflation data and the Federal Reserve’s policy meeting outcomes.

Despite Britain’s labour market showing signs of cooling with a rise in unemployment, it did not significantly impact the British currency. Matthew Ryan from Ebury noted that while rising wages could delay Bank of England interest rate cuts, increased joblessness poses risks to the UK’s growth outlook.

MUFG’s Derek Halpenny pointed out that the euro has broken below key support at the 0.8500 level. He anticipates the euro could trade within the 0.8500-0.8600 range if Marine Le Pen’s National Rally does not secure a majority in France. Conversely, the euro might drop to near early 2022 lows around 0.8300 if the party becomes the largest without forming a majority.

Money markets currently estimate a 40% chance of a 25 basis points BoE rate cut in August, with higher odds for a similar cut by November.

The post Sterling hits 22-month high versus euro edges up vs dollar first appeared on Finblog.

Eurosceptic nationalists made significant gains in the European Parliament elections, while the Greens and Liberals lost ground. In Italy, Prime Minister Giorgia Meloni’s Brothers of Italy party won the most votes, cementing its popularity.

Macron’s decision introduces political uncertainty in France, the eurozone’s second-largest economy. If Marine Le Pen’s National Rally wins a parliamentary majority, Macron would lose control over domestic affairs. This uncertainty is unsettling markets during a key election year, with Britain’s general election on July 4 and U.S. elections in November.

Analysts warn of potential negative impacts on market confidence, particularly in France. Italy’s 10-year government bond yield gap over Germany, a risk indicator, will be closely watched. The broad STOXX 600 share index, near record highs, could also be affected.

The euro, down 2.5% against the dollar this year, has been influenced by interest rate outlooks in the euro area and the U.S. Last week, the European Central Bank cut rates for the first time in five years. Concerns over France’s high debt levels and political uncertainty may further impact its economy, especially after Standard & Poor’s downgraded France’s sovereign debt rating last month.

The post Euro falls in warning sign for markets after Macron calls snap France vote first appeared on Finblog.