The ECB's interest rate cut in June is imminent. Does the EUR/RMB exchange rate still have room to rise?

The European Central Bank will announce its interest rate decision on June 5th. The market generally expects the deposit rate to be cut by 25 basis points to 2%. This will be the eighth rate cut by the bank in the past year. From an exchange rate perspective, this rate cut may not have as big an impact on the euro as expected.

Inflation Data Supports Rate Cut Decision

The latest data shows that the eurozone’s May harmonized CPI preliminary year-on-year figure is 1.9%, the first time in eight months that it has fallen below the ECB’s 2% target. As inflation pressures ease, the ECB is expected to revise down its full-year inflation and economic growth forecasts when releasing its quarterly projections. Uncertainty surrounding Trump’s trade policies has put pressure on the European economy, further paving the way for a rate cut.

According to LSEG data, the market has largely priced in the 25 basis point rate cut. Analysts generally expect the ECB to make one more rate cut within the year, after which the deposit rate will stabilize around 1.75%.

Rate Cut ≠ Euro Depreciation

The key question is: will the euro weaken following the ECB’s rate cut? The answer may be surprising.

U.S. Trust Bank’s view is quite representative — due to the overall pressure on the dollar, even if the ECB cuts rates, the euro against the dollar is unlikely to depreciate significantly. Strategists point out that the market has already priced in expectations of further rate cuts. The EUR/USD is expected to stay within a range of 1.10 to 1.15 dollars, with investors’ buy-the-dip strategies during exchange rate declines providing effective support for the euro.

Danske Bank’s analysis further indicates that for the dollar to regain upward momentum, there needs to be a clear improvement in U.S. economic data. Before this turning point occurs, the euro against the dollar still has the potential to continue rising.

Potential Opportunities in EUR/CNY Exchange Rate

From the perspective of the euro to Chinese yuan exchange rate, the resilience of the euro relative to the dollar will further support this currency pair. Although the original text does not directly address the EUR/CNY trend, considering the progress of RMB internationalization and China-EU trade relations, the euro’s stable performance within the exchange rate system may provide a new reference framework for EUR/CNY forecasts. Investors should pay attention to the euro’s performance against the yuan after the ECB’s rate cut.

The rate cut expectations are already fully priced in. The real focus may lie in the ECB’s statements on future policy paths and whether the actual impact on the euro exchange rate will be overestimated by the market.