ECB’s Simkus Signals Two More Rate Cuts as Trade Wars Choke Growth

Another dovish salvo from the Eurozone—ECB hawk Gediminas Šimkus just fired the starting gun for two more rate cuts before year-end. Trade tensions are hammering European exports, and apparently the only tool left is cheaper money.

Because when growth stumbles, central bankers reach for the same playbook: flood the zone with liquidity and pray. Never mind that negative rates crippled bank margins for a decade—this time it’ll be different, right?

Meanwhile, crypto markets yawn. Bitcoin barely flinched at the news—after all, decentralized finance doesn’t wait for permission to adjust rates.

US tariffs and strong euro drag down expansion

New evidence points to a softening of the eurozone’s economic recovery. Earlier this week, the International Monetary Fund cut its forecast for eurozone GDP, citing mounting trade tensions and tighter financial conditions as key factors.

Simkus conceded that policymakers had been “overly optimistic” in predicting how fast the economy would rebound. He added that slower wage growth throughout the euro area has become a symptom of cooling demand.

He also cited the recent strength of the euro against other currencies, which makes European exports less competitive abroad. US tariffs, meanwhile, have diverted more Chinese goods to Europe, adding disinflationary pressure.

These factors are likely to be reflected in the ECB’s next batch of economic projections, which are set to be published in June. According to Simkus, the new numbers “are expected to include weaker economic growth and slower inflation than the assumptions” made in the previous forecast.

Nevertheless, Simkus discounted even more substantial interest rate reductions unless the economy weakens precipitously. For now, the ECB will probably stick to its usual quarter-point steps.

ECB sets the pace for action, not reliant on US deals

Simkus also emphasized that the ECB will not sit back and wait until the US trade negotiations are imminent.

The 90-day wait by the administration of President Trump was an attempt to impose some tariffs as binary options to enable trade agreements with major trading partners.

Even with the US ultimatums to some countries, Simkus warned that trade policy uncertainty will probably remain.

Several ECB officials shared similar views last week, citing softer manufacturing data and weaker growth in the service sector.

Now, markets are watching economic data and the comments from ECB officials up to the bank’s next policy meeting in June.

If the economy stays weak, a further rate cut could occur as soon as that meeting, leaving the ECB firmly on its current course of cautious but steady easing.

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