The ECB's June decision is imminent. How will the euro to RMB exchange rate evolve?

The European Central Bank is set to announce its latest interest rate decision on June 5, with markets focusing on its rate cut trajectory. According to the latest data from LSEG, traders have fully priced in a 25 basis point rate cut and generally expect one more rate cut within the year. Over the past 12 months, the ECB has implemented seven rate cuts, demonstrating a proactive response to the economic slowdown.

Inflation Data Supports Rate Cut Expectations

The harmonized CPI year-over-year preliminary figure for the Eurozone in May was 1.9%, hitting an eight-month low and first falling below the ECB’s 2% target. This data provides solid support for the central bank’s easing policy. Analysts expect that when the ECB releases its latest quarterly forecasts, it will also revise down inflation and economic growth projections, paving the way for continued rate cuts. Market consensus indicates that if a 25 basis point rate cut is confirmed this time, the deposit rate will decrease from the current 2.25% to 2%, with the final rate cut of the year pushing rates to around 1.75%.

Weak Dollar Supports Euro

Although rate cuts typically exert downward pressure on the euro, Uxin Bank points out that the overall trend of the US dollar is the key variable determining the euro’s outlook. Due to the recent poor performance of the dollar, even if the ECB further cuts rates, the euro is unlikely to depreciate significantly. The strategists further note that the market has fully priced in the rate cut expectations, and the EUR/USD exchange rate is expected to find support within the 1.10-1.15 dollar range. Institutional investors’ buy orders at low levels will effectively limit the euro’s downside.

Euro-RMB Outlook

From the perspective of the EUR/CNY exchange rate, the ECB’s easing policy contrasts with the relatively stable policy environment of the RMB. Against the backdrop of slowing European economic growth and ongoing rate cuts, the euro may face mild depreciation against the RMB. However, this pressure is not urgent, as changes in global risk appetite and Federal Reserve policy directions are also important factors.

Upcoming Focus

Danske Bank analysts believe that whether the dollar can regain support depends on whether US economic data shows significant improvement. Before clear signs of data improvement, the EUR/USD is expected to continue rising, which will support the relative strength of the EUR/CNY exchange rate. Investors should closely monitor this week’s central bank decisions, inflation forecasts, and US economic indicators, as these will determine the euro’s future trajectory.