The year-end rally is gaining momentum, and the DAX has recorded its largest gains since September. This week, the European Central Bank (ECB) holds the key to determining the next market movements. Its decision could extend the rise or bring it to a sudden halt.
As the ECB continues its rate-cutting cycle, the main question remains: how much will rates drop? It is unlikely that a clear roadmap will emerge from this meeting, as ECB President Christine Lagarde is expected to dodge the most pressing issues. Investors should temper their expectations for concrete guidance.
The unpredictable factor of Donald Trump adds more complexity. Potentially higher tariffs could have an inflationary effect, creating additional challenges for policymakers. Trump's trade policies remain a significant wildcard in an already uncertain economic landscape. As a result, the ECB may choose to buy more time to assess the broader economic impact before committing to new actions.
A 25 basis point cut seems the most likely, and markets anticipate a drop in the reference rate to 1.75% by the end of 2025. This measure could trigger a virtuous cycle: increased lending, higher investment, and growth in consumption could provide sustainable momentum to economic growth, even amid persistent uncertainty.
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